[Senate Hearing 110-533]
[From the U.S. Government Printing Office]


                                                        S. Hrg. 110-533
 
 BUSINESS TRANSFORMATION AND FINANCIAL MANAGEMENT AT THE DEPARTMENT OF 
                                DEFENSE 

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

                                HEARING

                               before the

            SUBCOMMITTEE ON READINESS AND MANAGEMENT SUPPORT

                                 of the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 7, 2008

                               __________

         Printed for the use of the Committee on Armed Services

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                      COMMITTEE ON ARMED SERVICES

                     CARL LEVIN, Michigan, Chairman

EDWARD M. KENNEDY, Massachusetts     JOHN McCAIN, Arizona
ROBERT C. BYRD, West Virginia        JOHN WARNER, Virginia,
JOSEPH I. LIEBERMAN, Connecticut     JAMES M. INHOFE, Oklahoma
JACK REED, Rhode Island              JEFF SESSIONS, Alabama
DANIEL K. AKAKA, Hawaii              SUSAN M. COLLINS, Maine
BILL NELSON, Florida                 SAXBY CHAMBLISS, Georgia
E. BENJAMIN NELSON, Nebraska         LINDSEY O. GRAHAM, South Carolina
EVAN BAYH, Indiana                   ELIZABETH DOLE, North Carolina
HILLARY RODHAM CLINTON, New York     JOHN CORNYN, Texas
MARK L. PRYOR, Arkansas              JOHN THUNE, South Dakota
JIM WEBB, Virginia                   MEL MARTINEZ, Florida
CLAIRE McCASKILL, Missouri           ROGER F. WICKER, Mississippi

                   Richard D. DeBobes, Staff Director

              Michael V. Kostiw, Republican Staff Director

                                 ______

            Subcommittee on Readiness and Management Support

                   DANIEL K. AKAKA, Hawaii, Chairman

ROBERT C. BYRD, West Virginia        JOHN THUNE, South Dakota
EVAN BAYH, Indiana                   JAMES M. INHOFE, Oklahoma
HILLARY RODHAM CLINTON, New York     SAXBY CHAMBLISS, Georgia
MARK L. PRYOR, Arkansas              ELIZABETH DOLE, North Carolina
CLAIRE McCASKILL, Missouri           ROGER F. WICKER, Mississippi

                                  (ii)

  

















                            C O N T E N T S

                               __________

                    CHRONOLOGICAL LIST OF WITNESSES

 Business Transformation and Financial Management at the Department of 
                                Defense

                            february 7, 2008

                                                                   Page

Walker, Hon. David M., Comptroller General of the United States..     4
Brinkley, Paul A., Deputy Under Secretary of Defense for Business 
  Transformation.................................................    24
Kunkel, Peter E., Principal Deputy Assistant Secretary of the 
  Army for Financial Management and Comptroller..................    29
Brook, Hon. Douglas A., Assistant Secretary of the Navy for 
  Financial Management and Comptroller...........................    34
Gibson, Hon. John H., Assistant Secretary of the Air Force for 
  Financial Management and Comptroller...........................    39

                                 (iii)


 BUSINESS TRANSFORMATION AND FINANCIAL MANAGEMENT AT THE DEPARTMENT OF 
                                DEFENSE

                              ----------                              


                       THURSDAY, FEBRUARY 7, 2008

                           U.S. Senate,    
              Subcommittee on Readiness and
                                Management Support,
                               Committee on Armed Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:33 p.m. in 
room SR-222, Russell Senate Office Building, Senator Daniel K. 
Akaka (chairman of the subcommittee) presiding.
    Committee members present: Senators Akaka and Thune.
    Majority staff members present: Peter K. Levine, general 
counsel; Michael J. McCord, professional staff member; and 
William K. Sutey, professional staff member.
    Minority staff members present: Gregory T. Kiley, 
professional staff member; and Lucian L. Niemeyer, professional 
staff member.
    Staff assistants present: Benjamin L. Rubin and Brian F. 
Sebold.
    Committee members' assistants present: Bonni Berge, 
assistant to Senator Akaka; Dahlia Reed, assistant to Senator 
Bayh; and Stephen C. Hedger, assistant to Senator McCaskill.

     OPENING STATEMENT OF SENATOR DANIEL K. AKAKA, CHAIRMAN

    Senator Akaka. The Readiness and Management Support 
Subcommittee meets today to address the issues of business 
transformation and financial management at the Department of 
Defense (DOD).
    For as long as I've been serving on this committee, we have 
been working to address this issue. This has been an entirely 
bipartisan effort in which I have been joined, first, by 
Senator Inhofe--and then by Senator Ensign--and we have served 
well together in both cases and now with Senator Thune. I want 
you to know that we stand together on this issue, because we 
know that, 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.
    I am pleased to have the Comptroller General here with us 
today, because the Government Accountability Office (GAO) has 
played an invaluable role in advising both Congress and DOD in 
what we need to do to make progress on this issue. I want to 
say, also, that I've worked with the Comptroller General over 
the years, we've worked well together, and we've worked on what 
we call ``high-risk areas,'' and continue to do that. This is 
one of those areas.
    I also am pleased to see Paul Brinkley, who has made a 
tremendous contribution to the business transformation effort 
during his time at the DOD.
    Over the last 4 years, the senior leadership at DOD has 
demonstrated a commitment to business systems modernization by 
establishing a Defense Systems Management Committee, a Business 
Transformation Agency (BTA), and a new federated architecture 
for the Department's defense system. The establishment of Chief 
Management Officers (CMOs) for the DOD in each of the military 
departments, in accordance with section 904 of the National 
Defense Authorization Act (NDAA) for Fiscal Year 2008, should 
further advance this effort.
    Despite these signs of progress, we still have a long way 
to go. I remain gravely concerned that the military departments 
have not yet followed DOD's lead in establishing new governance 
structures to address business transformation, 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, instead, continue to 
rely upon old stovepipe structures to implement piecemeal 
reforms. The establishment of CMOs for the military departments 
may help address these problems, but will not, alone, be 
enough.
    The last time we had a transition from one administration 
to another, we started from scratch on business modernization, 
throwing years of hard work out the window. DOD then floundered 
for the better part of 4 years before finding the more 
promising road that we are now on.
    I look forward to working with Senator Thune and DOD to 
ensure that, regardless of who our next President may be, the 
Department's business modernization efforts do not skip a beat 
in the next transition between administrations.
    Senator Thune, your statement?

                STATEMENT OF SENATOR JOHN THUNE

    Senator Thune. Thank you, Mr. Chairman. I appreciate you 
calling this hearing.
    I look forward to helping build on the record of strong 
bipartisan oversight that this subcommittee created during the 
last 5 years over financial management reform efforts at DOD. 
The goal of reform is to provide timely, accurate financial 
information to our senior military and civilian leaders in 
order for them to make sound day-to-day management decisions. 
The importance of this goal cannot be understated. Ensuring the 
taxpayers' dollars are well spent is all our responsibility; in 
a time of war, it's even more so. Every dollar wasted is one 
less dollar for armored vehicles, one less dollar for body 
armor, one less dollar for ammunition, or one less dollar for 
medical supplies. It's important that we not forget that.
    Reviewing the record of this subcommittee and the GAO's 
oversight, progress has been made on the Office of the 
Secretary of Defense (OSD) level. Mr. Walker, I want to thank 
you and your staff for your continued engagement on this vital 
topic. I also would like to recognize the efforts of Mr. 
Brinkley and the staff of the BTA for their continued 
commitment to business systems modernization within the 
Department.
    Sadly, not all the news, as you noted, Mr. Chairman, is 
good. At the Service level, much still needs to be done. A 
little over a year ago, this subcommittee held its last 
financial management hearing, focusing on the lack of progress 
within the military departments in developing business systems 
architectures and fielding modern business systems. To our 
knowledge, the Services have not followed the OSD's lead in 
developing new government structures to better address business 
transformation, nor have they developed detailed comprehensive 
enterprise architectures and transition plans that fit into 
OSD's federated structure.
    It appears little progress has been made over the past 
years, and this is troubling. I understand that people move on 
in government service. Administrations come and administrations 
go, and that changeover can be a positive thing, but the 
continued lack of accountability, the multiple plans for change 
over the years that are never implemented, and the hundreds of 
millions of dollars wasted is a disservice to the American 
taxpayer. They deserve better.
    Senator Akaka and I remain committed to continuing these 
hearings, and continuing on the path of reform upon which we 
are currently traveling.
    On a positive note, I would like to recognize the 
contribution of Ellsworth Air Force Base, in my home State of 
South Dakota, towards the financial reform within the Air 
Force. A new Air Force Financial Services Center opened just 
this past October at Ellsworth Air Force Base. It will 
transform most of the military and travel pay operations of the 
Air Force by centralizing transactions from 93 bases into one 
centralized location. The opening of the Air Force Financial 
Services Center will improve the effectiveness and efficiency 
of the Air Force financial services and customer service.
    I look forward to hosting Secretary Gibson in the near 
future when he comes to visit, and we hope to see more of this 
sort of positive progress in the coming year.
    So, Mr. Chairman, again, thank you for taking time to hold 
the hearing today, and I appreciate, very much, those who are 
appearing before the subcommittee. We welcome your testimony 
and look forward to having you respond to some of the questions 
that we have prepared for you.
    Thank you, Mr. Chairman.
    Senator Akaka. Thank you, Senator Thune, for your 
statement.
    Let me introduce our panel: The Honorable David M. Walker, 
who's Comptroller General of the United States; Paul A. 
Brinkley, Deputy Under Secretary of Defense for Business 
Transformation; Peter E. Kunkel, Principal Deputy Assistant 
Secretary of the Army for Financial Management and Comptroller; 
The Honorable Douglas A. Brook, Assistant Secretary of the Navy 
for Financial Management and Comptroller; and The Honorable 
John H. Gibson, Assistant Secretary of the Air Force for 
Financial Management and Comptroller.
    Welcome, to all of you. I'd like to ask the Comptroller 
General to begin.

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

    Mr. Walker. Chairman Akaka, Senator Thune, thank you for 
the opportunity to come back for this regular 6-month update on 
where things stand on business transformation within the 
Department.
    I've submitted a statement for the record. I assume that 
you will enter it into the record, and I'll just move to 
summarize the highlights now, if that's okay with you.
    Senator Akaka. All of your statements will be included in 
the record.
    Mr. Walker. Thank you.
    I would first like to commend this subcommittee for its 
continued efforts over a number of years, and hopefully it will 
continue in the future. I agree, this is a nonpartisan issue, 
this is about good government. This is economy, efficiency, and 
effectiveness, and that doesn't have a party label.
    Let me say, at the outset, in my opinion significant 
progress has been made in the last 2 to 3 years at the OSD 
level, and I think that needs to be acknowledged. We have a 
number of people that have dedicated significant time and 
effort, and it's been evident, and it's achieved results at the 
OSD level. That has not, however, been replicated at the 
military department level, and that's the reason we are here 
today.
    Within the last 6 months, there have been several key 
events. I'll mention just a few.
    You mentioned, Mr. Chairman, the NDAA, which included a 
statutory requirement for the Department to have a strategic 
and integrated business transformation plan, which we had 
advocated for some time. It also created a deputy CMO and a CMO 
in each of the military departments.
    Furthermore, through the DOD's own efforts, a number of 
significant items occurred during the last 6 months. In 
financial management, they have moved, under their Financial 
Improvement and Audit Readiness (FIAR) Plan, which is their 
audit readiness plan, from a line-item approach to a segment 
approach, which is consistent with GAO's recommendation and 
makes a lot more sense. They've made some progress on 
standardizing data across the DOD, although much more needs to 
be done. They also are creating more emphasis on real success 
in financial management, which is not to achieve a clean 
opinion on your financial statements; that should come after 
you achieve the basics. The basics are: timely, accurate, and 
useful, financial and other management information to make 
informed decisions on a day-to-day basis. That's, ultimately, 
what you need. You need that first, and they are refocusing on 
that fundamental need.
    In the information technology area, they've issued their 6-
month update on the enterprise architecture and the enterprise 
transformation plan. But, in summary, significant progress has 
been made at the enterprise level, but that has not been 
replicated at the military department level, which is why we're 
here today. My two major concerns at this point in time are: 
(a) to accelerate progress at the military department level; 
and (b) continuity, which applies both at the enterprise-wide 
and the military department level, concerns with regard to the 
changeover that we know is before us in January in this next 
year, whoever wins the Presidential election, and the fact that 
it doesn't appear that there is going to be a reasonable degree 
of continuity on some of these key positions. Obviously, we 
have career officials who are there, and I'd be interested in 
knowing what's been done by DOD to try to provide some 
continuity through that vantage point.
    But, I would note one of the things that we've talked about 
before, Mr. Chairman and Senator Thune, is that, in our view, 
the chief operating officer or chief management official (CMO), 
department-wide, needs to be a term appointment, because that's 
the only way that you're going to provide continuity within and 
between administrations. While that person might need to be 
politically acceptable, they shouldn't be primarily chosen for 
political considerations, they need to be a professional who 
can end up helping to run and achieve business transformation 
success for the largest, most complex, and most important 
entity on the face of the Earth, the DOD.
    We are fortunate today in having Deputy Secretary Gordon 
England, who's an extraordinary individual, and he clearly is 
the kind of person that we need to have in that type of role. 
But, there is no guarantee whatsoever, absent statutory 
qualification requirements and other actions, that that will 
continue.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Walker follows:]
               Prepared Statement by Hon. David M. Walker
    Mr. Chairman and members of the subcommittee: I am pleased to be 
here today to discuss the status of the Department of Defense's (DOD) 
efforts to transform DOD's business operations and the actions that DOD 
needs to take to maintain continuity of effort, change the status quo, 
and achieve sustainable success, both at the enterprise-wide level and 
within DOD's many components. Before I go further, I also want to 
commend the subcommittee for its continued focus, oversight, and 
legislative initiatives to address these critical issues.
    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 these operations. DOD continues to dominate our list 
of high-risk programs designated as vulnerable to waste, fraud, abuse, 
and mismanagement, bearing responsibility, in whole or in part, for 15 
of 27 high-risk areas.\1\ Eight of these areas are specific to DOD and 
include DOD's overall approach to business transformation, as well as 
business systems modernization and financial management, which are the 
focus of this hearing. Collectively, these high-risk areas relate to 
DOD's major business operations that directly support the warfighters, 
including how they are paid, the benefits provided to their families, 
and the availability and condition of equipment they use both on and 
off the battlefield.
---------------------------------------------------------------------------
    \1\ Government Accountability Office (GAO), High-Risk Series: An 
Update, GAO-07-310 (Washington, DC: January 2007).
---------------------------------------------------------------------------
    Given the current security environment and growing long-range 
fiscal imbalance facing our Nation, DOD, like other Federal agencies, 
will need to ensure prudent and proper stewardship of the resources it 
is provided to perform its mission. Commitments are clearly growing 
both abroad, with our involvement in ongoing operations in Iraq and 
Afghanistan, as well as at home, with efforts to provide homeland 
security. However, our Nation is threatened not only by external 
security threats, but also from within by large and growing fiscal 
imbalances, due primarily to our aging population and rising health 
care costs. Absent policy changes to cope with rising health care costs 
and known demographic trends, a growing imbalance between expected 
Federal spending and revenues will mean escalating and ultimately 
unsustainable Federal deficits and debt levels. As I have stated 
previously, our Nation is on an imprudent and unsustainable fiscal 
path. Given this scenario, DOD cannot afford to continue to rely on 
ineffective and inefficient business processes, controls, and 
technology to support its mission. With about $546 billion in 
discretionary budget authority provided thus far in fiscal year 2008, 
along with total reported obligations of about $492 billion to support 
ongoing operations and activities related to the global war on 
terrorism since the September 11, 2001, attacks through September 2007, 
the department has been given stewardship of unprecedented amounts of 
taxpayer money. DOD must do more to ensure proper stewardship and 
accountability of the resources it is given.
    Transforming business operations in any organization is a long-
term, difficult process, especially in an organization as large and 
complex as DOD. Congress, under the leadership of this subcommittee and 
others, has been instrumental in transforming DOD through oversight and 
through legislation that has codified many of our prior 
recommendations, particularly with respect to the modernization of 
DOD's business systems.\2\ While transformation will never be easy, our 
work shows that DOD will certainly continue to face difficulty in 
achieving better outcomes in its business operations and, ultimately, 
optimizing support to the warfighters until it adopts a better 
leadership approach to guide its business transformation efforts. My 
testimony today will provide perspectives on the progress DOD has made 
and the challenges it faces in its approaches to overall business 
transformation, business systems modernization, and financial 
management capabilities improvements. In particular, I will focus on 
the progress DOD has made in developing its business enterprise 
architecture (BEA), enterprise transition plan (ETP), and Financial 
Improvement and Audit Readiness (FIAR) Plan; DOD's investment controls 
for new business systems; the extent to which DOD is complying with 
applicable legislation; and the degree to which the department has 
integrated the roles of the military Services in these efforts. My 
statement is based largely on previous reports and testimonies; 
however, some portions are based upon ongoing work. All of this work 
was performed in accordance with generally accepted government auditing 
standards.
---------------------------------------------------------------------------
    \2\ Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375, Sec. 332 (2004) (codified in part at 10 
U.S.C. Sec. Sec. 186 and 2222).
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                                summary
    DOD's senior leadership has demonstrated a commitment to 
transforming the department's business operations, and has taken many 
steps in the last few years to further this effort. For example, DOD 
has made progress in creating transformational entities to guide its 
efforts, such as the Defense Business Systems Management Committee and 
the Business Transformation Agency,\3\ as well in developing plans and 
other tools. However, two critical actions, among others, are still 
needed to put DOD on a sustainable path to success. DOD has yet to 
establish: (1) a strategic planning process that results in a 
comprehensive, integrated, and enterprise-wide plan or set of plans to 
help guide transformation; and (2) a senior official who can provide 
full-time attention and sustained leadership to the overall business 
transformation effort.
---------------------------------------------------------------------------
    \3\ The Business Transformation Agency is the DOD agency 
responsible for DOD's business transformation and the development and 
implementation of the ETP.
---------------------------------------------------------------------------
    Congress has clearly recognized the need for executive-level 
attention to these matters as well as sound planning, and has taken 
important action to codify key responsibilities. Specifically, the 
National Defense Authorization Act for Fiscal Year 2008 designates the 
Deputy Secretary of Defense as the department's Chief Management 
Officer (CMO), creates a Deputy CMO position, and designates the 
undersecretaries of each military department as CMOs for their 
respective departments. The act also requires the Secretary of Defense, 
acting through the CMO, to develop a strategic management plan that 
among other things is to include a detailed description of performance 
goals and measures for improving and evaluating the overall efficiency 
and effectiveness of the business operations of the department.
    In light of this legislation, it will be important for DOD to 
define the specific roles and responsibilities for the CMO, Deputy CMO, 
and the service CMOs; ensure clearly delineated reporting relationships 
among them and other department and service officials; foster good 
executive-level working relationships for maximum effectiveness; 
establish appropriate integration and transformation structures and 
processes; promote individual accountability and performance; and 
provide for continuity. With less than a year before a change in 
administrations, DOD should focus significant effort in the months 
ahead to institutionalize as many of these actions as possible. 
However, in the absence of more permanence, DOD will still face 
challenges in sustaining continuity of leadership. In that respect, we 
continue to believe the CMO should be codified in statute as a separate 
position with an appropriate term to span administrations.
    With regard to business systems modernization, which is a critical 
enabler to enhancing overall business transformation, DOD continues to 
take steps to comply with legislative requirements. However, much 
remains to be accomplished before the full intent of this legislation 
is achieved. In particular, DOD continues to update its BEA, which 
while addressing several issues previously reported by us, is 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 yet include well-
defined architectures for DOD's component architectures. In addition, 
the scope and content of the department's ETP do not address DOD's 
complete portfolio of information technology (IT) investments. As part 
of its approach to incrementally improving its BEA, DOD issued a 
strategy for ``federating'' or extending its architecture to the 
military departments and defense agencies. In our view, much remains to 
be accomplished before a well-defined federated architecture is in 
place, particularly given the limitations in the federation strategy 
(e.g., including information on how the component architectures are to 
align with the latest version of the BEA) and the immature state of the 
military department architecture programs. DOD has since developed an 
updated version of its federation strategy, which according to DOD 
officials, addresses some of our recommendations.
    The department has also established and has begun to implement 
legislatively directed corporate investment review structures and 
processes needed to effectively manage its business systems 
investments, but neither DOD nor the military departments have done so 
in a manner that is fully consistent with relevant guidance. For 
example, the department has not yet established business system 
investment policies and procedures for ensuring that investment 
selection decisions are aligned with investment funding decisions, 
which increases the chance of inconsistent and uninformed 
decisionmaking. 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 investment 
management practices are profound and must be managed carefully, as 
must the wide assortment of other risks that we have reported relative 
to specific DOD business systems investments. Our work and research has 
shown that establishing effective systems modernization management 
controls, such as an architecture-centric approach to investment 
decisionmaking, while not a guarantee, can increase the chances of 
delivering cost-effective business capabilities on time and within 
budget. As such, we have made recommendations aimed at improving these 
institutional and program-specific controls, and DOD has largely agreed 
with these recommendations.
    Regarding financial management, DOD has taken steps toward 
developing and implementing a framework for addressing the department's 
longstanding financial management weaknesses and improving its 
capability to provide timely, reliable, and relevant financial 
information for analysis, decisionmaking, and reporting, a key defense 
transformation priority.\4\ Specifically, this framework, which is 
discussed in both the department's ETP and the FIAR Plan,\5\ is 
intended to define and put into practice a standard DOD-wide financial 
management data structure as well as enterprise-level capabilities to 
facilitate reporting and comparison of financial data across the 
department. While these efforts should improve the consistency and 
comparability of DOD's financial reports, a great deal of work remains 
before the financial management capabilities of DOD and its components 
are transformed and the department achieves financial visibility.\6\ 
Examples of work remaining that must be completed as part of DOD 
component efforts to support the FIAR and ETP include data cleansing; 
improvements in current policies, processes, procedures, and controls; 
and implementation of integrated systems. Further, in 2007, DOD 
introduced refinements to its approach for achieving financial 
statement auditability. While these refinements reflect a clearer 
understanding of the importance of the sustainability of financial 
management improvements and the department's reliance on the successful 
completion of component (including military Services and defense 
agencies) and subordinate initiatives, they are not without risks, 
which I will discuss later.
---------------------------------------------------------------------------
    \4\ DOD has identified six business enterprise priorities for 
transforming the department: personnel visibility, acquisition 
visibility, common supplier engagement, materiel visibility, real 
property accountability, and financial visibility.
    \5\ DOD's FIAR Plan was issued in December 2005 and had been 
updated periodically is intended 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.
    \6\ DOD defines financial visibility as providing immediate access 
to accurate and reliable financial information (planning, programming, 
budgeting, accounting, and cost information) in support of financial 
accountability and efficient and effective decisionmaking through the 
department in support of the warfighters.
---------------------------------------------------------------------------
                               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 and possibly unprecedented management 
challenge. Execution of DOD's operations spans a wide range of defense 
organizations, including the military departments 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 in 
specific geographic regions or theaters of operation. To support DOD's 
operations, the department performs an assortment of interrelated and 
interdependent business functions--using thousands of 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.
    To address longstanding management problems, we began our high-risk 
series in 1990 to identify and help resolve serious weaknesses in areas 
that involve substantial resources and provide critical services to the 
public.\7\ Historically, high-risk areas have been designated because 
of traditional vulnerabilities related to their greater susceptibility 
to fraud, waste, abuse, and mismanagement. As our high-risk program has 
evolved, we have increasingly used the high-risk designation to draw 
attention to areas associated with broadbased transformation needed to 
achieve greater economy, efficiency, effectiveness, accountability, and 
sustainability of selected key government programs and operations. DOD 
has continued to dominate the high-risk list, bearing responsibility, 
in whole or in part, for 15 of our 27 high-risk areas. Of the 15 high-
risk areas, the 8 DOD-specific high-risk areas cut across all of DOD's 
major business areas. Table 1 lists the eight DOD-specific high-risk 
areas and the year in which each area was designated as high risk. In 
addition, DOD shares responsibility for seven governmentwide high-risk 
areas.\8\
---------------------------------------------------------------------------
    \7\ See GAO, High-Risk Series: An Update, GAO-07-310 (Washington, 
DC: January 2007).
    \8\ DOD shares responsibility for the following seven 
governmentwide high-risk areas: (1) disability programs, (2) ensuring 
the effective protection of technologies critical to U.S. national 
security interests, (3) interagency contracting, (4) information 
systems and critical infrastructure, (5) information-sharing for 
homeland security, (6) human capital management, and (7) real property 
management.

TABLE 1: YEARS WHEN SPECIFIC DOD AREAS ON GAO'S 2007 HIGH-RISK LIST WERE
                      FIRST DESIGNATED AS HIGH RISK
------------------------------------------------------------------------
                                                      Year designated as
                      DOD area                             high risk
------------------------------------------------------------------------
DOD approach to business transformation.............               2005
DOD personnel security clearance program............               2005
DOD support infrastructure management...............               1997
DOD business systems modernization..................               1995
DOD financial management............................               1995
DOD contract management.............................               1992
DOD supply chain management.........................               1990
DOD weapon systems acquisition......................              1990
------------------------------------------------------------------------
Source: GAO.

    GAO designated DOD's approach to business transformation as high 
risk in 2005 because: (1) DOD's improvement efforts were fragmented, 
(2) DOD lacked an enterprise-wide and integrated business 
transformation plan, and (3) DOD had not appointed a senior official at 
the right level with an adequate amount of time and appropriate 
authority to be responsible for overall business transformation 
efforts. Collectively, these high-risk areas relate to DOD's major 
business operations, which directly support the warfighter, including 
how servicemembers get paid, the benefits provided to their families, 
and the availability of and condition of the equipment they use both on 
and off the battlefield.
    DOD's pervasive business systems and related financial management 
deficiencies adversely affect its ability to assess resource 
requirements; control costs; ensure basic accountability; anticipate 
future costs and claims on the budget; measure performance; maintain 
funds control; prevent and detect fraud, waste, and abuse; and address 
pressing management issues. Over the years, DOD initiated numerous 
efforts to improve its capabilities to efficiently and effectively 
support management decisionmaking and reporting, with little success. 
Therefore, we first designated DOD's business systems modernization and 
financial management as high-risk areas in 1995, followed by its 
approach to business transformation in 2005.
Overview of DOD Business Systems Modernization High-Risk Area
    The business systems modernization high-risk area is large, 
complex, and integral to each of the other high-risk areas, as 
modernized systems are pivotal enablers to addressing longstanding 
transformation, financial, and other management challenges. DOD 
reportedly relies on approximately 3,000 business systems to support 
its business functions. For fiscal year 2007, Congress appropriated 
approximately $15.7 billion to DOD, and for fiscal year 2008, DOD has 
requested about $15.9 billion in appropriated funds to operate, 
maintain, and modernize these business systems and the associated 
infrastructures, of which approximately $11 billion was requested for 
the military departments. For years, DOD has attempted to modernize its 
many systems, and we have provided numerous recommendations to help it 
do so. For example, in 2001, we provided the department with a set of 
recommendations to help in developing and using an enterprise 
architecture (modernization blueprint) and establishing effective 
investment management controls to guide and constrain how the billions 
of dollars each year are spent on business systems. We also made 
numerous project-specific and DOD-wide recommendations aimed at 
ensuring that the department follows proven best practices when it 
acquires IT systems and services.
Enterprise Architecture and IT Investment Management Are Two Keys to 
        Successfully Modernizing Systems
    Effective use of an enterprise architecture, or modernization 
blueprint, is a hallmark of successful public and private 
organizations. For more than a decade, we have promoted the use of 
architectures to guide and constrain systems modernization, recognizing 
them as a crucial means to a challenging goal: agency operational 
structures that are optimally defined in both the business and 
technological environments. Congress has also recognized the importance 
of an architecture-centric approach to modernization: the E-Government 
Act of 2002,\9\ for example, requires the Office of Management and 
Budget (OMB) to oversee the development of enterprise architectures 
within and across agencies.
---------------------------------------------------------------------------
    \9\ E-Government Act of 2002, Pub. L. No. 107-347 (2002).
---------------------------------------------------------------------------
    In brief, an enterprise architecture provides a clear and 
comprehensive picture of an entity, whether it is an organization 
(e.g., a Federal department) or a functional or mission area that cuts 
across more than one organization (e.g., financial management). This 
picture consists of snapshots of both the enterprise's current or ``As 
Is'' environment and its target or ``To Be'' environment. These 
snapshots consist of ``views,'' which are one or more architecture 
products (models, diagrams, matrices, text, etc.) that provide logical 
or technical representations of the enterprise. The architecture also 
includes a transition or sequencing plan, based on an analysis of the 
gaps between the ``As Is'' and ``To Be'' environments; this plan 
provides a temporal road map for moving between the two that 
incorporates such considerations as technology opportunities, 
marketplace trends, fiscal and budgetary constraints, institutional 
system development and acquisition capabilities, the dependencies and 
life expectancies of both new and ``legacy'' (existing) systems, and 
the projected value of competing investments. Our experience with 
Federal agencies has shown that investing in IT without defining these 
investments in the context of an architecture often results in systems 
that are duplicative, not well integrated, and unnecessarily costly to 
maintain and interface.\10\
---------------------------------------------------------------------------
    \10\ See, for example, GAO, Homeland Security: Efforts Underway to 
Develop Enterprise Architecture, but Much Work Remains, GAO-04-777 
(Washington, DC: Aug. 6, 2004); DOD Business Systems Modernization: 
Limited Progress in Development of Business Enterprise Architecture and 
Oversight of Information Technology Investments, GAO-04-731R 
(Washington, DC: May 17, 2004); and Information Technology: 
Architecture Needed to Guide NASA's Financial Management Modernization, 
GAO-04-43 (Washington, DC: Nov. 21, 2003).
---------------------------------------------------------------------------
    A corporate approach to IT investment management is also 
characteristic of successful public and private organizations. 
Recognizing this, Congress developed and enacted the Clinger-Cohen Act 
in 1996,\11\ which requires OMB to establish processes to analyze, 
track, and evaluate the risks and results of major capital investments 
in information systems made by executive agencies.\12\ In response to 
the Clinger-Cohen Act and other statutes, OMB developed policy for 
planning, budgeting, acquisition, and management of Federal capital 
assets and issued guidance.\13\ We have also issued guidance in this 
area,\14\ in the form of a framework that lays out a coherent 
collection of key practices that when implemented in a coordinated 
manner, can lead an agency through a robust set of analyses and 
decision points that support effective IT investment management. This 
framework defines institutional structures, such as investment review 
boards, and associated processes, such as common investment criteria. 
Further, our investment management framework recognizes the importance 
of an enterprise architecture as a critical frame of reference for 
organizations making IT investment decisions. Specifically, it states 
that only investments that move the organization toward its target 
architecture, as defined by its sequencing plan, should be approved 
(unless a waiver is provided or a decision is made to modify the 
architecture). Moreover, it states that an organization's policies and 
procedures should describe the relationship between its architecture 
and its investment decisionmaking authority. Our experience has shown 
that mature and effective management of IT investments can vastly 
improve government performance and accountability, and can help to 
avoid wasteful IT spending and lost opportunities for improvements.
---------------------------------------------------------------------------
    \11\ The Clinger-Cohen Act of 1996, 40 U.S.C. Sec. Sec. 11101-
11704. This act expanded the responsibilities of OMB and the agencies 
that had been set under the Paperwork Reduction Act, which requires 
that agencies engage in capital planning and performance and results-
based management. 44 U.S.C. Sec. 3504(a)(1)(B)(vi) (OMB); 44 U.S.C. 
Sec. 3506(h)(5) (agencies).
    \12\ We have made recommendations to improve OMB's process for 
monitoring high-risk IT investments; see GAO, Information Technology: 
OMB Can Make More Effective Use of Its Investment Reviews, GAO-05-276 
(Washington, DC: Apr. 15, 2005).
    \13\ This policy is set forth and guidance is provided in OMB 
Circular No. A-11 (section 300) and in OMB's Capital Programming Guide, 
which directs agencies to develop, implement, and use a capital 
programming process to build their capital asset portfolios.
    \14\ GAO, Information Technology Investment Management: A Framework 
for Assessing and Improving Process Maturity, GAO-04-394G (Washington, 
DC: March 2004).
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Financial Management
    A major component of DOD's business transformation strategy is its 
FIAR Plan, issued in December 2005 and updated annually in June and 
September. The FIAR Plan was issued pursuant to section 376 of the 
National Defense Authorization Act for Fiscal Year 2006.\15\ 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 
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 
such actions to process and control improvements and business systems 
modernization efforts described in the BEA and transition plan. The 
John Warner National Defense Authorization Act for Fiscal Year 2007 
continued to limit DOD's ability to obligate or expend funds for 
financial improvement until the Secretary of Defense submits a 
determination to the committees that the activities are consistent with 
the plan required by section 376.\16\
---------------------------------------------------------------------------
    \15\ Pub. L. No. 109-163, Sec. 376 (2006).
    \16\ Pub. L. No. 109-364, Sec. 321 (2006).
---------------------------------------------------------------------------
    DOD intends for the FIAR Plan to provide DOD components with a road 
map for resolving problems affecting the accuracy, reliability, and 
timeliness of financial information, and obtaining clean financial 
statement audit opinions. As such, the FIAR Plan greatly depends on the 
actions taken by DOD components, including efforts to: (1) develop and 
implement systems that are in compliance with DOD's BEA; (2) implement 
sustained improvements in business processes and controls to address 
material weaknesses; and (3) achieve clean financial statement audit 
opinions. The FIAR Plan uses an incremental approach to structure its 
process for examining operations, diagnosing problems, planning 
corrective actions, and preparing for audit. Although the FIAR Plan 
provides estimated timeframes for achieving auditability in specific 
areas or components, it does not provide a specific target date for 
achieving a clean audit opinion on the department-wide financial 
statements. Rather, the FIAR Plan recognizes that its ability to fully 
address DOD's financial management weaknesses and ultimately achieve 
clean audit opinions will depend largely on the efforts of its 
components to successfully implement new business systems on time, 
within budget, and with the intended capability.
    dod has made progress in addressing its business transformation 
  efforts, but critical actions are needed to provide comprehensive, 
  integrated, and strategic planning and focused, sustained leadership
    DOD's leaders have demonstrated a commitment to making the 
department's business transformation a priority and made progress in 
establishing a management framework for these efforts. For example, the 
Deputy Secretary of Defense has overseen the establishment of various 
management entities and the creation of plans and tools to help guide 
business transformation at DOD. However, our analysis has shown that 
these efforts are largely focused on business systems modernization and 
that ongoing efforts across the department's business areas are not 
adequately integrated. In addition, DOD lacks two crucial features that 
are integral to successful organizational transformation: (1) a 
strategic planning process that results in a comprehensive, integrated, 
and enterprise-wide plan or interconnected plans; and (2) a senior 
leader who is responsible and accountable for business transformation 
and who can provide full-time focus and sustained leadership.\17\
---------------------------------------------------------------------------
    \17\ See GAO, Defense Business Transformation: Achieving Success 
Requires a Chief Management Officer to Provide Focus and Sustained 
Leadership, GAO-07-1072 (Washington, DC: September 5, 2007).
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DOD Has Made Progress in Addressing Its Business Transformation 
        Challenges
    DOD's senior leadership has shown commitment to transforming the 
department's business operations, and DOD has taken a number of 
positive steps to begin this effort. Because of the impact of the 
department's business operations on its warfighters, DOD recognizes the 
need to continue working toward transforming its business operations 
and providing transparency in this process. The department has devoted 
substantial resources and made important progress toward establishing 
key management structures and processes to guide business systems 
investment activities, particularly at the department-wide level, in 
response to legislation that codified many of our prior recommendations 
related to DOD business systems modernization and financial 
management.\18\
---------------------------------------------------------------------------
    \18\ Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375, Sec. 332 (2004) (codified in part at 10 
U.S.C. Sec. Sec. 186 and 2222).
---------------------------------------------------------------------------
    Specifically, in the past few years, DOD has established the 
Defense Business Systems Management Committee, investment review 
boards, and the Business Transformation Agency to manage and guide 
business systems modernization. The Defense Business Systems Management 
Committee and investment review boards were statutorily required by the 
Ronald W. Reagan National Defense Authorization Act for Fiscal Year 
2005 to review and approve the obligation of funds for defense business 
systems modernization, depending on the cost and scope of the system in 
review. The Business Transformation Agency was created to support the 
top-level management body, the Defense Business Systems Management 
Committee, and to advance DOD-wide business transformation efforts.
    Additionally, DOD has developed a number of tools and plans to 
enable these management entities to help guide business systems 
modernization efforts. The tools and plans include the BEA and the ETP. 
The ETP is currently considered the highest-level plan for DOD business 
transformation. According to DOD, the ETP is intended to summarize all 
levels of transition planning information (milestones, metrics, 
resource needs, and system migrations) as an integrated product for 
communicating and monitoring progress, resulting in a consistent 
framework for setting priorities and evaluating plans, programs, and 
investments.
    Our analysis of these tools, plans, and meeting minutes of the 
various transformational management entities shows that these efforts 
are largely focused on business systems modernization, and that this 
framework has yet to be expanded to encompass all of the elements of 
overall business transformation. Furthermore, DOD has not clearly 
defined or institutionalized in directives the interrelationships, 
roles and responsibilities, or accountability for the various entities 
that make up its management framework for overall business 
transformation. For example, opinions differ within DOD as to which 
senior governance body will serve as the primary body responsible for 
overall business transformation. Some officials stated that the Defense 
Business Systems Management Committee would serve as the senior-most 
governance entity, while others stated that the Deputy's Advisory 
Working Group, a group that provides department-wide strategic 
direction on various issues, should function as the primary 
decisionmaking body for business transformation.
    Additionally, opinions differ between the two entities regarding 
the definition of DOD's key business areas, with the Defense Business 
Systems Management Committee and the Business Transformation Agency 
using a broader definition of business processes than that of the 
Deputy's Advisory Working Group and its supporting organizations. Until 
such differences are resolved and the department institutionalizes a 
management framework that spans all aspects of business transformation, 
DOD will not be able to integrate related initiatives into a 
sustainable, enterprisewide approach and to resolve weaknesses in 
business operations.
Critical Actions Are Needed to Provide Comprehensive, Integrated, and 
        Strategic Planning and Focused, Sustained Leadership for DOD's 
        Overall Business Transformation Efforts
    As we have testified and reported for years, a successful, 
integrated, department-wide approach to addressing DOD's overall 
business transformation requires two critical elements: a 
comprehensive, integrated, and enterprise-wide plan and an individual 
capable of providing full-time focus and sustained leadership both 
within and across administrations, dedicated solely to the integration 
and execution of the overall business transformation effort.
    DOD Lacks a Strategic Planning Process That Results in a 
        Comprehensive, Integrated, and Enterprisewide Plan or Set of 
        Plans
    DOD continues to lack a comprehensive, integrated, and enterprise-
wide plan or set of linked plans for business transformation that is 
supported by a comprehensive planning process and guides and unifies 
its business transformation efforts. Our prior work has shown that this 
type of plan should help set strategic direction for overall business 
transformation efforts and all key business functions; prioritize 
initiatives and resources; and monitor progress through the 
establishment of performance goals, objectives, and rewards.\19\ 
Furthermore, an integrated business transformation plan would be 
instrumental in establishing investment priorities and guiding the 
department's key resource decisions.
---------------------------------------------------------------------------
    \19\ See for example, GAO-07-1072; GAO, Defense Business 
Transformation: A Comprehensive Plan, Integrated Efforts, and Sustained 
Leadership Are Needed to Assure Success, GAO-07-229T (Washington, DC: 
Nov. 16, 2006); Department of Defense: Sustained Leadership Is Critical 
to Effective Financial and Business Management Transformation, GAO-06-
1006T (Washington, DC: Aug. 3, 2006); and DOD's High-Risk Areas: 
Successful Business Transformation Requires Sound Strategic Planning 
and Sustained Leadership, GAO-05-520T (Washington, DC: Apr. 13, 2005).
---------------------------------------------------------------------------
    While various plans exist for different business areas, DOD's 
various business-related plans are not yet integrated to include 
consistent reporting of goals, measures, and expectations across 
institutional, unit, and individual program levels. Our analysis shows 
that plan alignment and integration currently focus on data consistency 
among plans, meaning that plans are reviewed for errors and 
inconsistencies in reported information, but there is a lack of 
consistency in goals and measurements among plans. Other entities such 
as the Institute for Defense Analyses, the Defense Science Board, and 
the Defense Business Board have similarly reported the need for DOD to 
develop an enterprise-wide plan to link strategies across the 
department for transforming all business areas and thus report similar 
findings.
    DOD officials recognize that the department does not have an 
integrated plan in place, although they have stated that their 
intention is to expand the scope of the ETP so that it becomes a more 
robust enterprise-wide planning document and to evolve this plan into 
the centerpiece strategic document. DOD updates the ETP twice a year, 
once in March as part of DOD's annual report to Congress and once in 
September, and DOD has stated the department's goal is to evolve the 
plan into a comprehensive, top-level planning document for all business 
functions. DOD released the most recent ETP update on September 28, 
2007, and we will continue to monitor developments in this effort.
    The National Defense Authorization Act for Fiscal Year 2008 
requires the Secretary of Defense, acting through the CMO, to develop a 
strategic management plan to include detailed descriptions of such 
things as performance goals and measures for improving and evaluating 
the overall efficiency and effectiveness of the business operations of 
the department, key initiatives to achieve these performance goals, 
procedures to monitor progress, procedures to review and approve plans 
and budgets for changes in business operations, and procedures to 
oversee the development, review, and approval of all budget requests 
for defense business systems. While these provisions are extremely 
positive, their impact will depend on DOD's implementation. We continue 
to believe that the key to success of any planning process is the 
extent to which key stakeholders participate, and whether the ultimate 
plan or set of plans is linked to the department's overall strategic 
plan, reflects an integrated approach across the department, identifies 
performance goals and measures, shows clear linkage to budgets, and 
ultimately is used to guide business transformation.
    Recent Legislation Takes Important Step to Provide Executive-Level 
        Attention to Business Transformation Matters
    We have long advocated the importance of establishing CMO positions 
in government agencies, including DOD, and have previously reported and 
testified on the key characteristics of the position necessary for 
success.\20\ In our view, transforming DOD's business operations is 
necessary for DOD to resolve its weaknesses in the designated high-risk 
areas and to ensure that the department has sustained leadership to 
guide its business transformation efforts. Specifically, because of the 
complexity and long-term nature of business transformation, DOD needs a 
CMO with significant authority, experience, and a term that would 
provide sustained leadership and the time to integrate its overall 
business transformation efforts. Without formally designating 
responsibility and accountability for results, DOD will face 
difficulties reconciling competing priorities among various 
organizations, and prioritizing investments will be difficult and could 
impede the department's progress in addressing deficiencies in key 
business areas.
---------------------------------------------------------------------------
    \20\ See, for example, GAO-07-1072, GAO-07-310, GAO-07-229T, and 
GAO-06-1006T.
---------------------------------------------------------------------------
    Clearly, Congress has recognized the need for executive-level 
attention to business transformation matters and has taken specific 
action in the National Defense Authorization Act for Fiscal Year 2008 
to codify CMO responsibilities at a high level in the department--
assigning them to the Deputy Secretary of Defense--as well as other 
provisions, such as establishing a full-time Deputy CMO and designating 
CMO responsibilities within the military departments.\21\ From a 
historical perspective, this action is unprecedented and represents 
significant steps toward giving business transformation high-level 
management attention. Now that this legislation has been enacted, it 
will be important for DOD to define the specific roles and 
responsibilities for the CMO, Deputy CMO, and the service CMOs; ensure 
clearly delineated reporting relationships among them and other 
department and service officials; foster good executive-level working 
relationships for maximum effectiveness; establish appropriate 
integration and transformation structures and processes; promote 
individual accountability and performance; and provide for 
continuity.\22\
---------------------------------------------------------------------------
    \21\ Pub. L. No. 110-181, Sec. 904 (2008).
    \22\ See GAO, Organizational Transformation: Implementing Chief 
Operating Officer/Chief Management Officer Positions in Federal 
Agencies, GAO-08-322T (Washington, DC: Dec. 13, 2007).
---------------------------------------------------------------------------
    Further, in less than 1 year, our government will undergo a change 
in administrations, which raises questions about continuity of effort 
and the sustainability of the progress that DOD has made to date. As we 
have said before, business transformation is a long-term process, and 
continuity is key to achieving true transformation. One of the 
challenges now facing DOD, therefore, is establishing this continuity 
in leadership to sustain progress that has been made to date. In the 
interest of the department and the American taxpayers, we continue to 
believe the department needs a full-time CMO over the long-term in 
order to devote the needed focus and continuity of effort to transform 
its key business operations and avoid billions more in waste each year. 
As such, we believe the CMO position should be codified as a separate 
position from the Deputy Secretary of Defense in order to provide full-
time attention to business transformation and subject to an extended 
term appointment. The CMO's appointment should span administrations to 
ensure that transformation efforts are sustained across 
administrations. Because business transformation is a long-term and 
complex process, a term of at least 5 to 7 years is recommended to 
provide sustained leadership and accountability.
    Moreover, the fact that the National Defense Authorization Act for 
Fiscal Year 2008 modifies politically appointed positions by codifying 
a new designation for the Deputy Secretary of Defense, creating a new 
Deputy CMO of DOD, and adding a new designation to the military 
departments' under secretary positions to serve as the military 
departments' CMOs raises larger questions about succession planning and 
how the executive branch fills appointed positions, not only within 
DOD, but throughout the government. Currently, there is no distinction 
in the political appointment process among the different types of 
responsibilities inherent in the appointed positions. Further, the 
positions generally do not require any particular set of management 
qualifications, even though the appointees may be responsible for non-
policy-related functions. For example, appointees could be categorized 
by the differences in their roles and responsibilities, such as by the 
following categories:

         those appointees who have responsibility for various 
        policy issues;
         those appointees who have leadership responsibility 
        for various operational and management matters; and
         those appointees who require an appropriate degree of 
        technical competence or professional certification, as well as 
        objectivity and independence (for example, judges, the 
        Comptroller General, and inspectors general).

    We have asked for a reexamination of the political appointment 
process to assess these distinctions as well as which appointee 
positions should be presidentially appointed and Senate confirmed 
versus presidentially appointed with advance notification to 
Congress.\23\ For example, those appointees who have policy leadership 
responsibility could be presidentially appointed and Senate confirmed, 
while many of those with operational and management responsibility 
could be presidentially appointed, with a requirement for appropriate 
congressional notification in advance of appointment. In addition, 
appropriate qualifications for selected positions, including the 
possibility of establishing specific statutory qualifications criteria 
for certain categories of appointees, could be articulated. Finally, 
the use of term appointments and different compensation schemes for 
these appointees should be reviewed.
---------------------------------------------------------------------------
    \23\ GAO, A Call for Stewardship: Enhancing the Federal 
Government's Ability to Address Key Fiscal and Other 21st Century 
Challenges, GAO-08-93SP (Washington, DC: December 2007), and Suggested 
Areas for Oversight for the 110th Congress, GAO-07-235R (Washington, 
DC: Nov. 17, 2006).
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   dod is continuing to improve its approach to modernizing business 
                     systems, but challenges remain
    Despite noteworthy progress in establishing institutional business 
system and management controls, DOD is still not where it needs to be 
in managing its department-wide business systems modernization. Until 
DOD fully defines and consistently implements the full range of 
business systems modernization management controls (institutional and 
program-specific), it will not be positioned to effectively and 
efficiently ensure that its business systems and IT services 
investments are the right solutions for addressing its business needs, 
that they are being managed to produce expected capabilities 
efficiently and cost effectively, and that business stakeholders are 
satisfied.
    For decades, DOD has been attempting to modernize its business 
systems. We designated DOD's business systems modernization program as 
high risk in 1995. Since then, we have made scores of recommendations 
aimed at strengthening DOD's institutional approach to modernizing its 
business systems, and reducing the risks associated with key business 
system investments. In addition, in recent legislation, Congress 
included provisions that are consistent with our recommendations, such 
as in the Ronald W. Reagan National Defense Authorization Act for 
Fiscal Year 2005. In response, the department has taken, or is taking, 
important actions to implement both our recommendations and the 
legislative requirements and as a result has made noteworthy progress 
on some fronts in establishing corporate management controls, such as 
developing a corporate-level BEA, including an ETP, establishing 
corporate investment management structures and processes, increasing 
business system life cycle management discipline and leveraging highly-
skilled staff on its largest business system investments.
    However, much more remains to be accomplished to address this high-
risk area, particularly with respect to ensuring that effective 
corporate approaches and controls are extended to and employed within 
each of DOD's component organizations (military departments and defense 
agencies). To this end, our recent work has highlighted challenges that 
the department still faces in ``federating'' (i.e., extending) its 
corporate BEA to its component organizations' architectures, ensuring 
that the scope and content of the department's business systems 
transition plan addresses DOD's complete portfolio of IT investments, 
as well as establishing institutional structures and processes for 
selecting, controlling, and evaluating business systems investments 
within each component organization.\24\ Beyond this, ensuring that 
effective system acquisition management controls are actually 
implemented on each business system investment also remains a 
formidable challenge, as our recent reports on management weaknesses 
associated with individual programs have disclosed.\25\ Among other 
things, these reports have identified program-level weaknesses relative 
to architecture alignment, economic justification, performance 
management, requirements management, and testing.
---------------------------------------------------------------------------
    \24\ DOD Business Systems Modernization: Progress Continues to Be 
Made in Establishing Corporate Management Controls, but Further Steps 
Are Needed, GAO-07-733 (Washington, DC: May 14, 2007).
    \25\ See, for example, GAO, DOD Business Transformation: Lack of an 
Integrated Strategy Puts the Army's Asset Visibility System Investments 
at Risk, GAO-07-860 (Washington, DC: July 27, 2007); Information 
Technology: DOD Needs to Ensure That Navy Marine Corps Intranet Program 
Is Meeting Goals and Satisfying Customers, GAO-07-51 (Washington, DC: 
Dec. 8, 2006); Defense Travel System: Reported Savings Questionable and 
Implementation Challenges Remain, GAO-06-980 (Washington, DC: Sept. 26, 
2006); 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); and 
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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DOD Continues to Improve Its Corporate BEA and ETP, but Component 
        Architectures Remain a Challenge
    In May 2007,\26\ we reported on DOD's efforts to address a number 
of provisions in the National Defense Authorization Act for Fiscal Year 
2005.\27\ Among other things, we stated that the department had adopted 
an incremental strategy for developing and implementing its 
architecture, including the transition plan, 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. However, we also reported that additional steps were 
needed. Examples of these improvements and remaining issues with the 
BEA and the ETP are summarized below:
---------------------------------------------------------------------------
    \26\ GAO-07-733.
    \27\ Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375, Sec. 332 (2004) (codified in part at 10 
U.S.C. Sec. 2222).

         The latest version of the BEA contained enterprise-
        level information about DOD's ``As Is'' architectural 
        environment to support business capability gap analyses. As we 
        previously reported,\28\ such gap analyses between the ``As 
        Is'' and the ``To Be'' environments are essential for the 
        development of a well-defined transition plan.
---------------------------------------------------------------------------
    \28\ GAO, DOD Business Systems Modernization: Important Progress 
Made in Establishing Foundational Architecture Products and Investment 
Management Practices, but Much Work Remains, GAO-06-219 (Washington, 
DC: Nov. 23, 2005).
---------------------------------------------------------------------------
         The latest version included performance metrics for 
        the business capabilities within enterprise priority areas, 
        including actual performance relative to performance targets 
        that are to be met. For example, currently 26 percent of DOD 
        assets are reported by using formats that comply with the 
        Department of the Treasury's United States Standard General 
        Ledger,\29\ as compared to a target of 100 percent. However, 
        the architecture did not describe the actual baseline 
        performance for operational activities, such as for the 
        ``Manage Audit and Oversight of Contractor'' operational 
        activity. As we have previously reported,\30\ performance 
        models are an essential part of any architecture and having 
        defined performance baselines to measure actual performance 
        provides the means for knowing whether the intended mission 
        value to be delivered by each business process is actually 
        being realized.
---------------------------------------------------------------------------
    \29\ The United States Standard General Ledger provides a uniform 
chart of accounts and technical guidance used in standardizing Federal 
agency accounting.
    \30\ GAO, Information Technology: A Framework for Assessing and 
Improving Enterprise Architecture Management (Version 1.1), GAO-03-584G 
(Washington, DC: April 2003), and GAO-04-777.
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         The latest version identified activities performed at 
        each location/organization and indicates which organizations 
        are or will be involved in each activity. We previously 
        reported that prior versions did not address the locations 
        where specified activities are to occur and that doing so is 
        important because the cost and performance of implemented 
        business operations and technology solutions are affected by 
        the location and therefore need to be examined, assessed, and 
        decided on in an enterprise context rather than in a piecemeal, 
        systems-specific fashion.\31\
---------------------------------------------------------------------------
    \31\ Business Systems Modernization: DOD Continues to Improve 
Institutional Approach, but Further Steps Needed, GAO-06-658 
(Washington, DC: May 15, 2006).
---------------------------------------------------------------------------
         The March 2007 ETP continued to identify more systems 
        and initiatives that are to fill business capability gaps and 
        address DOD-wide and component business priorities, and it 
        continues to provide a range of information for each system and 
        initiative in the plan (e.g., budget information, performance 
        metrics, and milestones). However, this version still does not 
        include system investment information for all the defense 
        agencies and combatant commands. Moreover, the plan does not 
        sequence the planned investments based on a range of relevant 
        factors, such 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 DOD 
        officials, they intend to address such limitations in future 
        versions of the transition plan as part of their plans for 
        addressing our prior recommendations.\32\ In September 2007, 
        DOD released an updated version of the plan which, according to 
        DOD, continues to provide time-phased milestones, performance 
        metrics, and statement of resource needs for new and existing 
        systems that are part of the BEA and component architectures, 
        and includes a schedule for terminating old systems and 
        replacing them with newer, improved enterprise solutions.
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    \32\ See GAO-07-733.

    As we have also reported, the latest version of the BEA continues 
to represent the thin layer of DOD-wide corporate architectural 
policies, capabilities, rules, and standards. Having this layer is 
essential to a well-defined federated architecture, but it alone does 
not provide the total federated family of DOD parent and subsidiary 
architectures for the business mission area that are needed to comply 
with the act. The latest version had yet to be augmented by the DOD 
component organizations' subsidiary architectures, which are necessary 
to meeting statutory requirements and the department's goal of having a 
federated family of architectures. Under the department's tiered 
accountability approach, the corporate BEA focuses on providing 
tangible outcomes for a limited set of enterprise-level (DOD-wide) 
priorities, while the components are to define and implement their 
respective component-level architectures that are aligned with the 
corporate BEA.
    However, we previously reported that well-defined architectures did 
not yet exist for the military departments, which constitute the 
largest members of the federation, and the strategy that the department 
had developed for federating its BEA needed more definition to be 
executable.\33\ In particular, we reported in 2006,\34\ that none of 
the three military departments had fully developed architecture 
products that describe their respective target architectural 
environments and developed transition plans for migrating to a target 
environment, and none was employing the full range of architecture 
management structures, processes, and controls provided for in relevant 
guidance. Also, we reported that the federation strategy did not 
address, among other things, how the component architectures will be 
aligned with the latest version of the BEA and how it will identify and 
provide for reuse of common applications and systems across the 
department.
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    \33\ GAO, Business Systems Modernization: Strategy for Evolving 
DOD's Business Enterprise Architecture Offers a Conceptual Approach, 
but Execution Details Are Needed, GAO-07-451 (Washington, DC: Apr. 16, 
2007); and Enterprise Architecture: Leadership Remains Key to 
Establishing and Leveraging Architectures for Organizational 
Transformation, GAO-06-831 (Washington, DC: Aug. 14, 2006).
    \34\ GAO-06-831.
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    According to DOD, subsequent releases of the BEA will continue to 
reflect this federated approach and will define enforceable interfaces 
to ensure interoperability and information flow to support 
decisionmaking at the appropriate level. To help ensure this, the BTA 
plans to have its BEA independent verification and validation 
contractor examine architecture federation when evaluating subsequent 
BEA releases. Use of an independent verification and validation agent 
is an architecture management best practice for identifying 
architecture strengths and weaknesses. Through the use of such an 
agent, department and congressional oversight bodies can gain 
information that they need to better ensure that DOD's family of 
architectures and associated transition plan(s) satisfy key quality 
parameters, such as completeness, consistency, understandability, and 
usability, which the department's annual reports have yet to include.
    We made recommendations aimed at improving the management and 
content of the military departments' respective architectures; ensuring 
that DOD's federated BEA provides a more sufficient frame of reference 
to guide and constrain DOD-wide system investments; and facilitating 
congressional oversight and promoting departmental accountability 
through the assessment of the completeness, consistency, 
understandability, and usability of its federated family business 
mission area architectures. DOD agreed with these recommendations and 
has since taken some actions, such as developing an updated version of 
its federation strategy, which according to DOD officials, addresses 
some of our recommendations. We have ongoing work for this Subcommittee 
on the military departments' architecture programs, and plan to issue a 
report in early May 2008.
DOD Has Largely Established Key Investment Management Structures, but 
        Related Policies and Procedures at Both the Corporate and 
        Component Levels Are Missing
    The department has established and has begun to implement 
legislatively directed corporate investment review structures and 
processes needed to effectively manage its business system investments, 
but it has yet to do so in a manner that is fully consistent with 
relevant guidance, both at a corporate and component level.\35\ To its 
credit, the department has, for example, established an enterprisewide 
investment board (Defense Business Systems Management Committee 
(DBSMC)) and subordinate boards (investment review boards (IRB)) that 
are responsible for business systems investment governance, documented 
policies and procedures for ensuring that systems support ongoing and 
future business needs through alignment with the BEA, and assigned 
responsibility for ensuring that the information collected about 
projects meets the needs of DOD's investment review structures and 
processes.
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    \35\ GAO, Business Systems Modernization: DOD Needs to Fully Define 
Policies and Procedures for Institutionally Managing Investments, GAO-
07-538 (Washington, DC: May 11, 2007).
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    However, the department has not developed the full range of 
project- and portfolio-level policies and procedures needed for 
effective investment management. For example, policies and procedures 
do not outline how the DBSMC and IRB investment review processes are to 
be coordinated with other decision-support processes used at DOD, such 
as the Joint Capabilities Integration and Development System; the 
Planning, Programming, Budgeting, and Execution system; and the Defense 
Acquisition System.\36\ Without clear linkages among these processes, 
inconsistent and uninformed decisionmaking may result. Furthermore, 
without considering component and corporate budget constraints and 
opportunities, the IRBs risk making investment decisions that do not 
effectively consider the relative merits of various projects and 
systems when funding limitations exist.
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    \36\ The Joint Capabilities Integration and Development System is a 
need-driven management system used to identify future capabilities for 
DOD. The Planning, Programming, Budgeting, and Execution process is a 
calendar-driven management system for allocating resources and 
comprises four phases--planning, programming, budgeting, and 
executing--that define how budgets for each DOD component and the 
department as a whole are created, vetted, and executed. The Defense 
Acquisition System is an event-driven system for managing product 
development and procurement that guides the acquisition process for 
DOD.
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    Examples of other limitations include not having policies and 
procedures for: (1) specifying how the full range of cost, schedule, 
and benefit data accessible by the IRBs are to be used in making 
selection decisions; (2) providing sufficient oversight and visibility 
into component-level investment management activities, including 
component reviews of systems in operations and maintenance; (3) 
defining the criteria to be used for making portfolio selection 
decisions; (4) creating the portfolio of business system investments; 
(5) evaluating the performance of portfolio investments; and (6) 
conducting post implementation reviews of these investments. According 
to best practices, adequately documenting both the policies and the 
associated procedures that govern how an organization manages its IT 
investment portfolio(s) is important because doing so provides the 
basis for having rigor, discipline, and repeatability in how 
investments are selected and controlled across the entire organization. 
Accordingly, we made recommendations aimed at improving the 
department's ability to better manage the billions of dollars it 
invests annually in its business systems and DOD largely agreed with 
these recommendations but added that while it intends to improve 
departmental policies and procedures for business system investments, 
each component is responsible for developing and executing investment 
management policies and procedures needed to manage the business 
systems under its tier of responsibility.
    According to DOD's tiered accountability approach, responsibility 
and accountability for business investment management is tiered, 
meaning that it is allocated between the DOD corporate level (i.e., 
Office of the Secretary of Defense) and the components based on the 
amount of development/modernization funding involved and the 
investment's designated tier.\37\
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    \37\ More specifically, DOD corporate is responsible for ensuring 
that all business systems with a development/modernization investment 
in excess of $1 million are reviewed by the IRBs for compliance with 
the BEA, certified by the principal staff assistants, and approved by 
DBSMC. Components are responsible for certifying development/
modernization investments with total costs of $1 million or less. All 
DOD development and modernization efforts are also assigned a tier 
based on acquisition category, the size of the financial investment, or 
both.
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    However, as our recent reports show \38\ the military departments 
also have yet to fully develop many of the related policies and 
procedures needed to execute both project-level and portfolio-level 
practices called for in relevant guidance for their tier of 
responsibility. For example, they have developed procedures for 
identifying and collecting information about their business systems to 
support investment selection and control, and assigned responsibility 
for ensuring that the information collected during project 
identification meets the needs of the investment management process. 
However, they have yet, for example, to fully document business systems 
investment policies and procedures for overseeing the management of IT 
projects and systems and for developing and maintaining complete 
business systems investment portfolio(s). Specifically, policies and 
procedures do not specify the processes for decisionmaking during 
project oversight and do not describe how corrective actions should be 
taken when the project deviates or varies from the project management 
plan. Without such policies and procedures, the agency risks investing 
in systems that are duplicative, stovepiped, nonintegrated, and 
unnecessarily costly to manage, maintain, and operate. Accordingly, we 
made recommendations aimed at strengthening the military departments' 
business systems management capability, and they largely agreed with 
these recommendations. Department officials stated that they are aware 
of the absence of documented policies and procedures in certain areas 
of project and portfolio-level management, and are currently working on 
new guidance to address these areas.
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    \38\ GAO, Business Systems Modernization: Air Force Needs to Fully 
Define Policies and Procedures for Institutionally Managing 
Investments, GAO-08-52 (Washington, DC: Oct. 31, 2007), and Business 
Systems Modernization: Department of the Navy Needs to Establish 
Management Structure and Fully Define Policies and Procedures for 
Institutionally Managing Investments, GAO-08-53 (Washington, DC: Oct. 
31, 2007).
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    Until DOD fully defines department-wide and component-level 
policies and procedures for both individual projects and portfolios of 
projects, it risks selecting and controlling these business systems 
investments in an inconsistent, incomplete, and ad hoc manner, which in 
turn reduces the chances that these investments will meet mission needs 
in the most cost-effective manner.
    The department has recently undertaken several initiatives to 
strengthen business system investment management. For example, it has 
drafted and intends to shortly begin implementing a new Business 
Capability Lifecycle approach that is to consolidate management of 
business system requirements, acquisition, and compliance with 
architecture disciplines into a single governance process. Further, it 
has established an Enterprise Integration Directorate in the Business 
Transformation Agency to support the implementation of enterprise 
resource planning systems \39\ by ensuring that best practices are 
leveraged and BEA-related business rules and standards are adopted.
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    \39\ An enterprise resource planning solution is an automated 
system using commercial off-the-shelf software consisting of multiple, 
integrated functional modules that perform a variety of business-
related tasks such as payroll, general ledger accounting, and supply 
chain management.
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Implementing Effective Modernization Management Controls on All 
        Business System Investments Remains a Key Challenge
    Beyond establishing the above discussed institutional modernization 
management controls, such as the BEA, portfolio-based investment 
management, and system life cycle discipline, the more formidable 
challenge facing DOD is how well it can implement these and other 
management controls on each and every business system investment and IT 
services outsourcing program. In this regard, we have continued to 
identify program-specific weaknesses as summarized below.

         With respect to taking an architecture-centric and 
        portfolio-based approach to investing in programs, for example, 
        we recently reported that the Army's approach for investing 
        about $5 billion over the next several years in its General 
        Fund Enterprise Business System, Global Combat Support System-
        Army Field/Tactical,\40\ and Logistics Modernization Program 
        (LMP) did not include alignment with Army enterprise 
        architecture or use of a portfolio-based business system 
        investment review process.\41\ Moreover, we reported that the 
        Army did not have reliable processes, such as an independent 
        verification and validation function, or analyses, such as 
        economic analyses, to support its management of these programs. 
        We concluded that until the Army adopts a business system 
        investment management approach that provides for reviewing 
        groups of systems and making enterprise decisions on how these 
        groups will collectively interoperate to provide a desired 
        capability, it runs the risk of investing significant resources 
        in business systems that do not provide the desired 
        functionality and efficiency.
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    \40\ Field/tactical refers to Army units that are deployable to 
locations around the world, such as Iraq or Afghanistan.
    \41\ GAO-07-860.

         With respect to providing DOD oversight organizations 
        with reliable program performance and progress information, we 
        recently reported that the Navy's approach for investing in 
        both system and IT services, such as the Naval Tactical Command 
        Support System (NTCSS) \42\ and Navy Marine Corps Intranet 
        (NMCI),\43\ had not always met this goal. For NTCSS, we 
        reported that, for example, earned value management, which is a 
        means for determining and disclosing actual performance against 
        budget and schedule estimates, and revising estimates based on 
        performance to date, had not been implemented effectively. We 
        also reported that complete and current reporting of NTCSS 
        progress and problems in meeting cost, schedule, and 
        performance goals had not occurred, leaving oversight entities 
        without the information needed to mitigate risks, address 
        problems, and take corrective action. We concluded that without 
        this information, the Navy cannot determine whether NTCSS, as 
        it was defined and was being developed, was the right solution 
        to meet its strategic business and technological needs. For 
        NMCI, we reported that performance management practices, to 
        include measurement of progress against strategic program goals 
        and reporting to key decisionmakers on performance against 
        strategic goals and other important program aspects, such as 
        examining service-level agreement satisfaction from multiple 
        vantage points and ensuring customer satisfaction, had not been 
        adequate. We concluded that without a full and accurate picture 
        of program performance, the risk of inadequately informing 
        important NMCI investment management decisions was increased.
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    \42\ GAO-06-215.
    \43\ GAO-07-51.

    Given the program-specific weaknesses that our work has and 
continues to reveal, it is important for DOD leadership and Congress to 
have clear visibility into the performance and progress of the 
department's major business system investments. Accordingly, we support 
the provisions in section 816 of the John Warner National Defense 
Authorization Act for Fiscal Year 2007 that provide for greater 
disclosure of business system investment performance to both department 
and congressional oversight entities, and thus increased accountability 
for results. More specifically, the legislation establishes certain 
reporting and oversight requirements for the acquisition of major 
automated information systems (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). Going forward, the challenge facing the department will be 
to ensure that these legislative provisions are effectively 
implemented. To the extent that they are, DOD business systems 
modernization transparency, oversight, accountability, and results 
should improve.
    We currently have ongoing work for this subcommittee looking at the 
military departments implementation of a broad range of acquisition 
management controls, such as architectural alignment, economic 
justification, and requirements management, on selected business 
systems at the Departments of the Air Force and Navy.
    dod has made progress in establishing a framework for improving 
        financial management capabilities, but more work remains
    DOD has taken steps toward developing and implementing a framework 
for addressing the department's longstanding financial management 
weaknesses and improving its capability to provide timely, reliable, 
and relevant financial information for analysis, decisionmaking, and 
reporting, a key defense transformation priority. Specifically, this 
framework, which is discussed in both the department's ETP and the FIAR 
Plan is intended to define and put into practice a standard DOD-wide 
financial management data structure as well as enterprise-level 
capabilities to facilitate reporting and comparison of financial data 
across the department. While these efforts should improve the 
consistency and comparability of DOD's financial reports, a great deal 
of work remains before the financial management capabilities of DOD and 
its components are transformed and the department achieves financial 
visibility. Examples of work remaining that must be completed as part 
of DOD component efforts to support the FIAR Plan and ETP include data 
cleansing; improvements in current policies, processes, procedures, and 
controls; and implementation of integrated systems. We also note DOD 
has other financial management initiatives underway, including efforts 
to move toward performance-based budgeting and to continually improve 
the reliability of global war on terrorism cost reporting.
    In 2007, DOD also introduced refinements to its approach for 
achieving financial statement auditability. While these refinements 
reflect a clearer understanding of the importance of the sustainability 
of financial management improvements and the department's reliance on 
the successful completion of component (including military Services and 
defense agencies) and subordinate initiatives, they are not without 
risk.
    Given the department's dependency on the efforts of its components 
to address DOD's financial management weaknesses, it is imperative that 
DOD ensure the sufficiency and reliability of: (1) corrective actions 
taken by DOD components to support management attestations as to the 
reliability of reported financial information; (2) activities taken by 
DOD components and other initiatives to ensure that corrective actions 
are directed at supporting improved financial visibility capabilities, 
beyond providing information primarily for financial statement 
reporting, and are sustained until a financial statement audit can be 
performed; and (3) accomplishments and progress reported by DOD 
components and initiatives.
Key DOD Financial Management Transformation Efforts Recognize the Need 
        for an Integrated Approach
    Successful financial transformation of DOD's financial operations 
will require a multifaceted, cross-organizational approach that 
addresses the contribution and alignment of key elements, including 
strategic plans, people, processes, and technology. DOD uses two key 
plans, the DOD ETP and the FIAR Plan, to guide transformation of its 
financial management operations. The ETP focuses on delivering improved 
capabilities, including financial management, through the deployment of 
system solutions that comply with DOD and component enterprise 
architectures. The FIAR Plan focuses on implementing audit-ready 
financial processes and practices through ongoing and planned efforts 
to address policy issues, modify financial and business processes, 
strengthen internal controls, and ensure that new system solutions 
support the preparation and reporting of auditable financial 
statements. Both plans recognize that while successful enterprise 
resource planning system implementations are catalysts for changing 
organizational structures, improving workflow through business process 
reengineering, strengthening internal controls, and resolving material 
weaknesses, improvements can only be achieved through the involvement 
of business process owners, including financial managers, in defining 
and articulating their operational needs and requirements and 
incorporating them, as appropriate, into DOD and component BEAs. DOD 
officials have acknowledged that integration between the two 
initiatives is a continually evolving process. For example, the June 
2006 FIAR Plan update stated that some of the department's initial 
subordinate plans included only limited integration with Business 
Transformation Agency initiatives and solutions. According to DOD 
officials, the use of end-to-end business processes (as provided by its 
segment approach) to identify and address financial management 
deficiencies will lead to further integration between the FIAR Plan and 
ETP.
    Two key transformation efforts that reflect an integrated approach 
toward improving DOD's financial management capabilities are the 
Standard Financial Information Structure (SFIS) and the Business 
Enterprise Information System (BEIS), both of which are discussed in 
DOD's ETP and FIAR Plan.

         SFIS. Key limitations in the department's ability to 
        consistently provide timely, reliable, accurate, and relevant 
        information for analysis, decisionmaking, and reporting are: 
        (1) its lack of a standard financial management data structure; 
        and (2) a reliance on numerous nonautomated data transfers 
        (manual data calls) to accumulate and report financial 
        transactions. In fiscal year 2006, DOD took an important first 
        step toward addressing these weaknesses through publication of 
        its SFIS Phase I data elements and their subsequent 
        incorporation into the DOD BEA. In March 2007, the department 
        issued a checklist for use by DOD components in evaluating 
        their systems for SFIS compliance.\44\ SFIS is intended to 
        provide uniformity throughout DOD in reporting on the results 
        of operations, allowing for greater comparability of 
        information. While the first phase of SFIS was focused on 
        financial statement generation, subsequent SFIS phases are 
        intended to provide a standardized financial information 
        structure to facilitate improved cost accounting, analysis, and 
        reporting. According to DOD officials, the department has 
        adopted a two-tiered approach to implement the SFIS data 
        structure. Furthermore, they stated that SFIS is a mandatory 
        data structure that will be embedded into every new financial 
        management system, including enterprise resource planning 
        systems, such as the Army's General Fund Enterprise Business 
        System and the Air Force's Defense Enterprise Accounting and 
        Management System (DEAMS). Further, recognizing that many of 
        the current accounting systems will be replaced in the future, 
        the department will utilize a common crosswalk to standardize 
        the data reported by the legacy systems.
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    \44\ Department of Defense Business Transformation Agency, 
Transformation Priorities and Requirements Division: Compliance 
Checklist for the Standard Financial Information Structure, (March 15, 
2007).
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         BEIS. A second important step that the department took 
        toward improving its capability to provide consistent and 
        reliable financial information for decisionmaking and reporting 
        was to initiate efforts to develop a DOD-level suite of 
        services to provide financial reporting services, cash 
        reporting, and reconciliation services. As an interim solution, 
        financial information obtained from legacy component systems 
        will be crosswalked from a component's data structure into the 
        SFIS format within BEIS. Newer or target systems, such as 
        DEAMS, will have SFIS imbedded so that the data provided to 
        BEIS will already be in the SFIS format.

    According to DOD's September 2007 FIAR Plan update, the department 
prepared financial statement reports using SFIS data standards for the 
Marine Corps general and working capital funds, the Air Force general 
and working capital funds, and the Navy working capital funds. The 
department plans to implement SFIS-compliant reporting for the Army 
working capital funds, the Navy general funds, and its defense agencies 
in fiscal year 2008. The development and implementation of SFIS and 
BEIS are positive steps toward standardizing the department's data 
structure and expanding its capability to access and utilize data for 
analysis, management decisionmaking, and reporting, including special 
reports related to the global war on terrorism.
    However, it is important to keep in mind that a great deal of work 
remains. In particular, data cleansing; improvements in policies, 
processes, procedures, and controls; as well as successful enterprise 
resource planning system implementations are needed before DOD 
components and the department fully achieve financial visibility. Our 
previous reviews of DOD system development efforts have identified 
instances in which the department faced difficulty in implementing 
systems on time, within budget, and with the intended capability.\45\ 
For example, as previously noted, the Army continues to struggle in its 
efforts to ensure that LMP will provide its intended capabilities. In 
particular, we reported that LMP would not provide the intended 
capabilities and benefits because of inadequate requirements management 
and system testing. Further, we found that the Army had not put into 
place an effective management process to help ensure that the problems 
with the system were resolved. Until the Army has completed action on 
our recommendations, it will continue to risk investing billions of 
dollars in business systems that do not provide the desired 
functionality or efficiency.
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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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DOD Refines Its Audit Strategy
    In fiscal year 2007, DOD introduced key refinements to its strategy 
for achieving financial statement auditability. These refinements 
include the following:

         Requesting audits of entire financial statements 
        rather than attempting to build upon audits of individual 
        financial statement line items.
         Focusing on improvements in end-to-end business 
        processes, or segments \46\ that underlie the amounts reported 
        on the financial statements.
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    \46\ DOD defines a segment as a component of an entity's business 
and financial environment. A segment can include: (1) complete or 
partial business processes; (2) financial systems, business systems, or 
both; or (3) commands or installations. According to DOD, the 
environment's complexity, materiality, and timing of corrective actions 
are all factors that are taken into consideration when defining a 
segment.
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         Using audit readiness validations and annual 
        verification reviews of segment improvements rather than 
        financial statement line item audits to ensure sustainability 
        of corrective actions and improvements.
         Forming a working group to begin auditability risk 
        assessments of new financial and mixed systems, such as 
        enterprise resource planning systems, at key decision points in 
        their development and deployment life cycle to ensure that the 
        systems include the processes and internal controls necessary 
        to support repeatable production of auditable financial 
        statements.

    To begin implementing its refined strategy for achieving financial 
statement auditability, DOD modified its business rules for achieving 
audit readiness to reflect the new approach.\47\ Recognizing that a 
period of time may pass before an entity's financial statements are 
ready for audit, the revised business rules provide for an independent 
validation of improvements with an emphasis on sustaining improvements 
made through corrective actions. Sustainability of improvements will be 
verified by DOD components through annual internal control reviews, 
using OMB's Circular No. A-123, Appendix A,\48\ as guidance.
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    \47\ Prior to its change in strategy, DOD used five business rules: 
discovery and correction, validation, assertion, assessment, and audit.
    \48\ OMB Circular No. A-123, Management's Responsibility for 
Internal Control, Appendix A, ``Internal Control over Financial 
Reporting,'' prescribes a method for Federal agencies, including DOD, 
to assess, document, and report on internal control over financial 
reporting at each level.
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    The department's move to a segment approach provides greater 
flexibility in assessing its business processes and in taking 
corrective actions, if necessary, within defined areas or end-to-end 
business processes that individually or collectively supports financial 
accounting and reporting. However, DOD officials recognize that 
additional guidance is needed in several key areas. For example, DOD 
has acknowledged that it needs to establish a process to ensure the 
sufficiency of segment work in providing, individually or collectively, 
a basis for asserting the reliability of reported financial statement 
information. DOD officials indicated that they intend to provide 
additional guidance in this area by March 2008. Additionally, DOD 
officials acknowledged that a process is needed to ensure that DOD's 
annual internal control reviews, including its OMB No. A-123, Appendix 
A reviews, are properly identifying and reporting on issues, and that 
appropriate corrective actions are taken when issues are identified 
during these reviews. To its credit, the department initiated the Check 
It Campaign in July 2006 to raise awareness throughout the department 
on the importance on effective internal controls.
    Ultimately, DOD's success in addressing its financial management 
deficiencies, resolving the longstanding weaknesses that have kept it 
on GAO's high-risk list for financial management, and finally achieving 
financial visibility will depend largely on how well its transformation 
efforts are integrated throughout the department. Both the ETP and FIAR 
Plan recognize that successful transformation of DOD's business 
operations, including financial management, largely depends on 
successful implementation of enterprise resource planning systems and 
processes and other improvements occurring within DOD components. Such 
dependency, however, is not without risk. To its credit, DOD recently 
established a working group to begin auditability risk assessments of 
new financial and mixed systems, such as enterprise resource planning 
systems. The purpose of these planned assessments is to identify 
auditability risks that, if not mitigated during the development of the 
system, may impede the component's ability to achieve clean audit 
opinions on its financial statements.
    Furthermore, the department has implemented and continually expands 
its use of a Web-based tool, referred to as the FIAR Planning Tool, to 
facilitate management, oversight, and reporting of departmental and 
component efforts. According to DOD officials, the tool is used to 
monitor progress toward achieving critical milestones identified for 
each focus area in component initiatives, such as financial improvement 
plans or accountability improvement plans, or department-wide 
initiatives. Given that the FIAR Planning Tool is used to report 
results to OMB through quarterly update reports to the President's 
Management Agenda and to update accomplishments in the FIAR Plan, it is 
critical that the FIAR Directorate ensure the reliability of reported 
progress. During a recent meeting with DOD officials, we discussed 
several areas where FIAR Plan reporting appeared incomplete. Our 
observations included the following:

         FIAR Plan updates, including the 2007 update, do not 
        mention or include the results of audit reports and studies 
        that may have occurred within an update period and how, if at 
        all, any issues identified were addressed. For example, the DOD 
        Inspector General has issued reports in recent years that raise 
        concerns regarding the reliability of the military equipment 
        valuation methodology and the usefulness of the valuation 
        results for purposes beyond financial statement reporting.\49\ 
        In 2007, the Air Force Audit Agency also issued reports 
        expressing concerns regarding the reliability of reported 
        military equipment values at Air Force.\50\ These audit reports 
        and actions, if any, taken in response to them have not been 
        mentioned to date in updates to the FIAR Plan. Further, 
        although both the June and September 2006 FIAR Plan updates 
        report that an internal verification and validation (IV&V) 
        study was completed to test the military equipment valuation 
        methodology, including completeness and existence of military 
        equipment assets, neither of these reports disclosed the 
        results of the review or corrective actions taken, if any. The 
        absence of relevant audit reports or study results may mislead 
        a reader into believing that no issues have been identified 
        that if not addressed, may adversely affect the results of a 
        particular effort, such as the department's military equipment 
        valuation initiative. For example, the IV&V study \51\ 
        identified several improvements that were needed, in varying 
        degrees, at all the military Services and the Special 
        Operations Command in the following areas: (1) documentation of 
        waivers;\52\ (2) documentation of support for authorization, 
        receipt, and payment; (3) estimated useful life; and (4) 
        existence of the asset. In its conclusion statement, the IV&V 
        study reported that if the weaknesses identified by the IV&V 
        review are pervasive throughout DOD, the department will have a 
        significant challenge to establish control over its resources 
        and get its military equipment assets properly recorded for a 
        financial statement audit. Recognition of audits and other 
        reviews in the FIAR and subordinate plans would add integrity 
        to reported accomplishments and further demonstrate the 
        department's commitment to transforming its financial 
        management capabilities and achieving financial visibility.
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    \49\ Department of Defense Inspector General, Financial Management: 
Report on Development of the DOD Baseline for Military Equipment, D-
2005-114 (Arlington, VA: Sept. 30, 2005), and Financial Management: 
Report on the Review of the Development of the DOD Baseline for 
Military Equipment, D-2005-112 (Arlington, VA: Sept. 30, 2005).
    \50\ Air Force Audit Agency, Air Force Military Equipment Baseline 
Valuation, F2007-0009-FB3000 (May 29, 2007), and Military Equipment 
Baseline--Electronic Pods, F2007-0003-FB3000 (Jan. 19, 2007).
    \51\ Department of Defense, Property and Equipment Policy, Office 
of Under Secretary of Defense for Acquisition, Technology, and 
Logistics, Internal Validation and Verification Project: Military 
Equipment Valuation (June 13, 2006).
    \52\ Waivers refer to military equipment programs that were 
intentionally not valued as part of the military equipment valuation 
initiative.
---------------------------------------------------------------------------
         While the FIAR Plan clearly identifies its dependency 
        on component efforts to achieve financial management 
        improvements and clean financial statement audit opinions, it 
        does not provide a clear understanding of further links or 
        dependency between its subordinate plans, such as between the 
        financial improvement plans, accountability improvement plans, 
        and department-wide initiatives, such as the military equipment 
        valuation effort. For example, while the 2007 FIAR Plan updates 
        indicate that Army, Navy, and Air Force developed 
        accountability improvement plans that detail steps required for 
        asserting audit readiness on military equipment, they do not 
        clearly articulate the relationship of these plans to other 
        plans, such as component financial improvement plans or the 
        department's plan to value military equipment. Clear linking of 
        individual plans and initiatives is important to ensuring that 
        efforts occurring at all levels within the department are 
        directed at achieving improved financial visibility in the most 
        efficient and effective manner.

    While we are encouraged by DOD's efforts to implement capabilities 
that improve comparability of reported financial information, a 
significant amount of work remains before the department or its 
components have the capability to provide timely, reliable, and 
relevant information for all management operations and reporting. We 
caution the department that going forward it will be important to 
ensure that its financial management modernization efforts do not 
become compliance-driven activities resulting in little to no benefit 
to DOD managers. It is critical that the department ensure that its 
oversight, management, implementation, and reporting of transformation 
efforts and accomplishments are focused on the implementation of 
sustained improvements in DOD's capability to provide immediate access 
to accurate and reliable financial information (planning, programming, 
budgeting, accounting, and cost information) in support of financial 
accountability and efficient and effective decision making throughout 
the department.
    Mr. Chairman and members of the subcommittee, this concludes my 
statement. I would be happy to answer any questions you may have at 
this time.
                              gao contact
    For questions regarding this testimony, please contact Sharon L. 
Pickup at (202) 512-9619 or [email protected] Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this statement.

    Senator Akaka. Thank you very much, Mr. Walker.
    Secretary Brinkley.

   STATEMENT OF PAUL A. BRINKLEY, DEPUTY UNDER SECRETARY OF 
              DEFENSE FOR BUSINESS TRANSFORMATION

    Mr. Brinkley. Chairman Akaka and Senator Thune, it's a 
great honor to be here today. I will also keep my remarks 
brief, given my statement's been entered for the record.
    I want to express gratitude to the committee and to 
Comptroller General Walker for the ongoing direction, passion, 
leadership, and interest that's been provided for the past 
several years on this topic. I also want to express gratitude 
for the acknowledgment we've already heard today of the 
progress that's been made. I think, too often, we're all 
focused on continuous improvement and making things better, but 
it is equally important that we pause once in a while and 
reflect, in government, on the good things that we do. This 
builds confidence in the organizations that we can achieve 
great things in government, and I appreciate the feedback that 
we've already received today.
    Comptroller General Walker has been a steadfast and 
extremely engaged observer of our efforts in the DOD. He and 
his staff continue to provide a great amount of stimulus to our 
efforts, in terms of continuous improvement; and, for that, we 
continue to be grateful, and we're thankful for his positive 
and negative feedback, which he provides with great regularity.
    I will focus on a couple of areas that I think are worthy 
of reiteration before I turn over to my colleagues. 
Specifically--and it has been mentioned today that we have made 
significant progress in the Department in recognizing two 
things. Even some of the terms that have been used here today, 
terms like ``federated,'' terms like ``accountability,'' 
``structure''--align to the title 10 legal structures that are 
in place for how we train, equip, and support our Armed Forces. 
We have recognized, and put in place, governance processes and 
structures that have leveraged those legal structures, as 
opposed to try to conflict with them.
    But the other thing I will say, that I know my colleagues 
here with me today share, is a great passion for introducing 
into government and into DOD the things that we take for 
granted in private life, in the Internet Age, is, just, people 
today. We are accustomed to fingertip access to information 
that informs decisions in all walks of our life. We go home, we 
bank online, we buy online, we demand instantaneous access to 
information online, and then we come back to work in 
government, and, too often, because of our legacy systems and 
our stovepipes and our processes, we don't have that access.
    Certainly for us, the most important customers we seek to 
satisfy are in the desert today, in places like Afghanistan and 
Iraq, and they certainly deserve the same access to information 
to inform their decisionmaking that we take for granted in 
daily life. So, our shared objective is to introduce and to 
ensure that our information environment in the DOD provides 
that sort of speed, agility, and transparency to our 
decisionmaking, and we're making progress at that, and progress 
remains to be made.
    Some specific points I will emphasize: We have defined data 
standards for our financial information in the DOD. Under the 
leadership of Comptroller Tina Jonas, significant progress has 
been made in standardizing our accounting. Just simple things, 
how we account for information, how we account for the dollars 
that the taxpayer invests in defense. We have standardized our 
transaction codes, our accounting codes, and those are being 
fielded at systems at the Department level and in the Services, 
and that took a significant amount of effort.
    Some systems that have been poster-children for hearings 
and GAO audits, the Defense Travel System; programs that are 
about to field, like the Defense Integrated Military Human 
Resources System (DIMHRS) for personnel pay, such a critical 
area, to provide uniform access to our talent in the 
Department, ensuring also that they are paid in a timely way, 
whether they're Guard, Reserve, or Active Duty. That system 
will begin to field this year and that represents major 
progress for the DOD.
    I'll also emphasize our direct support to the warfighter. 
The Department fielded a system a year ago to enable our 
contracting in Iraq and Afghanistan to be transparent and to 
facilitate economic development in those critical areas. The 
Joint Contingency Contracting System today has over 1,000 
active users in theater, thousands of companies have been 
registered in Afghanistan and in Iraq, hundreds of millions of 
dollars in contracts are now being awarded in a way that 
stimulates economic growth in those areas, and that's a direct 
result of the work that's taken place in the business 
transformation effort.
    We have not limited out efforts to systems. We have fielded 
and put in place a Lean Six Sigma continuous process 
improvement team--this is driving world-class business 
transformation practices at the DOD and is focused, even at the 
Federal level now, on re-engineering the Federal security 
clearance process, in collaboration with the Office of 
Management and Budget (OMB), Office of Personnel Management, 
and other organizations; teamworking on detainee operations and 
how to make that work more efficiently for our Federal 
Government at such a critical time in national security; 
assessing our secondary defense agencies and their financial 
practices, and ensuring that those secondary defense agencies 
have world-class systems and access to information to enable 
their decisionmaking to be more efficient. I've already 
mentioned our efforts in support of the warfighter, including 
our task force, fielded in Iraq today, working on economic 
development in a broad way in support of Multinational Force-
Iraq.
    I do have a couple of announcements to make. We did 
announce, recently, the appointment of David Fisher, who comes 
to us, with a Silicon Valley background, as the Director of the 
BTA. But, I'm pleased to announce--and, again, this is in 
direct response to a longstanding area of passion for David 
Walker--the appointment of Elizabeth McGrath as the first 
performance improvement officer for the DOD. Beth is my 
principal deputy. She is a career leader. She represents what I 
believe is the best of government. We have brought in world-
class talent from outside of government, and melded it with 
world-class talent from inside government. Beth will be part of 
the critical group of human resources who must carry forward, 
in this transition of administrations, our effort. Deputy 
Secretary England signed a memo recently, appointing her to 
this position. She is with us today, and we look forward to her 
leadership in this transition as the first performance 
improvement officer for the DOD.
    With that, I will turn over to my colleagues, and thank you 
for your time.
    [The prepared statement of Mr. Brinkley follows:]
                 Prepared Statement by Paul A. Brinkley
    Chairman Akaka, Senator Thune, and members of the subcommittee, 
thank you for this opportunity to provide information on the progress 
and direction of Defense Business Transformation.
    Our Nation faces diverse challenges and greater uncertainty about 
the future global security environment than ever before. The 
Department's mission requires that its business operations adapt to 
meet these challenges and react with precision and speed to support our 
Armed Forces.
    Over the past few years, Department of Defense (DOD) has built a 
strong foundation of agile business practices and management that ably 
supports the warfighter and provides transparent accountability to the 
taxpayer. By focusing on Investment Management and Governance and 
Performance Management and Improvement, the Department has made 
significant progress in its business transformation. I would like to 
note that much of the Department's success in its business 
transformation efforts can be attributed to the strong engagement of 
our senior leadership. Under the direction of the Deputy Secretary of 
Defense, Gordon England, the senior leadership of the Department has 
been engaged and accountable for the performance of our business 
operations. Secretary England has devoted extensive time and energy to 
this effort and the Deputy Secretary's role in managing the business 
operations of the Department was codified in a September 18, 2007, 
directive designating the position of Deputy Secretary of Defense as 
Chief Management Officer for the Department. I would like to take this 
opportunity to review with you our major successes and recent 
accomplishments.
                  investment management and governance
Defense Business Systems Management Committee
    As Deputy Secretary of Defense, Secretary England has worked 
tirelessly to improve the Department's business operations, most 
notably in his role as the Chair of the Defense Business System 
Management Committee (DBSMC), the overarching governance board for the 
Department's business activities. Since its inception in 2005, the 
DBSMC, in concert with the Investment Review Boards (IRBs), has served 
as the governance structure that guides the transformation activities 
of the business areas of the Department, such as finance, acquisition, 
etc. As authorized by the National Defense Authorization Act for Fiscal 
Year 2005 and reiterated in the DBSMC Charter, the DBSMC has 
responsibility for approving: business systems information technology 
(IT) modernizations over $1 million, the Business Enterprise 
Architecture (BEA), and the Enterprise Transition Plan (ETP).
    Additionally, the DBSMC Charter extends the authority of the DBSMC 
beyond statutory requirements to include responsibility for ensuring 
that the strategic direction of the Department's business operations 
are aligned with the rest of DOD, and for measuring and reporting the 
progress of defense business transformation. The DBSMC has also been an 
integral driving force behind the Department's adoption of Continuous 
Process Improvement (CPI)/Lean Six Sigma (LSS) methodology and the 
Department's shared focus on Enterprise Resource Planning (ERP) 
strategy. The DBSMC has provided invaluable top level direction for the 
business transformation efforts of the Department.
    The DBSMC/IRB governance structure has produced significant 
improvements across a broad range of business systems, including two 
major enterprise-level programs--the Defense Travel System (DTS) and 
the Defense Integrated Military Human Resources System (DIMHRS). Based 
on a combination of additional DTS fielding, DOD-wide emphasis, and a 
significant upgrade to the reservation module in February 2007, DTS 
usage of the tool has increased dramatically. Fiscal year 2007 showed 
an approximately 72 percent increase over the previous year in the 
number of vouchers processed. The next phase of the program will add 
additional types of travel to the tool's capability, which will further 
increase usage. We are also preparing to make the use of DTS mandatory 
for all trip types that the tool has the capability to handle. Finally, 
we are partnering with General Services Administration to capture 
governmentwide travel data that can then be used to make more effective 
strategic sourcing decisions. Under the direct leadership of the DBSMC, 
the DIMHRS program has achieved effective governance to keep the 
program on track for initial operating capability for the Army in 
October 2008.
Business Capability Lifecycles
    The DBSMC has overseen the development and implementation of the 
Business Capability Lifecycle (BCL), which, when fully implemented, 
will integrate requirements determination, acquisition, and compliance 
to the BEA under a consolidated governance structure for all business 
systems at the Major Automated Information System level. The BCL will 
help resolve longstanding challenges that have impacted the delivery of 
business capabilities in a timely, well-informed manner--fragmented 
governance and reporting, a need for better-defined requirements and 
more robust upfront solution analysis, and a need for continual access 
to comprehensive information to enhance visibility for all process 
stakeholders. Under BCL process rules, initial operational capability 
of a program must be reached within 12-18 months of the contract award 
or the business case will not be approved.
Business Enterprise Architecture
    The BEA has allowed us to establish clear benchmarks for the 
alignment of business systems to the Department's future business 
environment. It has also allowed us to make important and measurable 
progress, as acknowledged by recent Government Accountability Office 
(GAO) reports.
    As we continue to evolve the BEA, a key objective is to produce an 
architecture that can be harnessed as an executive decisionmaking 
mechanism while simultaneously supporting the implementation of IT 
systems and services. The recently released Concept of Operations for 
BEA Requirements addresses this objective by: 1) outlining a further 
maturation of the Department's architecture development approach that 
addresses both top-down strategic requirements and bottom-up tactical 
requirements, and 2) expanding the governance process to encourage 
users and stakeholders to shape architecture form and content. This 
approach is already drawing from new sources of requirements, better 
evaluating the priority of requirements, and providing improved 
governance for the BEA development cycle.
    When BEA 5.0 is released in March 2008, it will help achieve 
interoperable, efficient, transparent business operations by including 
and integrating data standards, required business rules and system 
interface requirements for the enterprise systems and ERP target 
programs.
                 performance management and improvement
Enterprise Transition Plan
    With the publication of the September 2005 ETP, the Department, for 
the first time, provided its internal and external stakeholders a 
comprehensive view of the systems and initiatives that will transform 
the largest business entity in the world. The ETP reflects the 
strategic and tactical partnership between the enterprise- and 
component-levels by providing a big picture view of defense business 
transformation efforts at every level within the business mission area. 
On September 30, 2007, we released the latest ETP, again delivering on 
our commitment to Congress to update this plan every 6 months. The 
September 2007 ETP included new sections describing DOD's strategy for 
achieving its six Business Enterprise Priorities and Component 
Priorities. With each release, the plan continues to mature, 
communicating our transformation plans and providing senior management 
with a tool for monitoring progress against those plans. Significant 
milestones in the ETP are shown in 6-, 12-, and 18-month increments. 
For example, our most recent publication reflected success on over 83 
percent of the Enterprise milestones detailed in the first version of 
the ETP. The ETP has also been expanded to include the progress of the 
Department's CPI/LSS efforts. The next update to the ETP is scheduled 
for release on March 15, 2008.
Defense Agencies Initiative
    The Defense Agencies Initiative (DAI) is a significant initiative 
within the Department's overall effort to modernize the Defense 
Agencies' financial management processes including streamlining 
financial management capabilities, eliminating material weaknesses, and 
achieving financial statement auditability for the Agencies and field 
activities across the DOD. The DAI implementation approach is to deploy 
a standardized system solution that effectively addresses the 
requirements in the Federal Financial Management Improvement Act, 
Office of Management and Budget (OMB) Circular A-127, and the BEA, by 
leveraging the out-of-the-box capabilities of the selected commercial 
off-the-shelf product. The benefits of DAI include a single Financial 
System Integration Office certified solution; \1\ common business 
processes and data standards; access to real-time financial data 
transactions; significantly reduced data reconciliation requirements; 
enhanced analysis and decision support capabilities; standardized line 
of accounting with the use of Standard Financial Information Structure 
(SFIS); and use of United States Standard General Ledger Chart of 
Accounts to resolve DOD material weaknesses and deficiencies.
---------------------------------------------------------------------------
    \1\ The Financial Systems Integration Office was formerly known as 
the Joint Financial Management Improvement Program staff office. FSIO 
has responsibility for core financial systems requirements development, 
testing, and product certification for the executive branch.
---------------------------------------------------------------------------
    Capitalizing on the business acumen of 28 defense agencies and/or 
field activities, DAI will implement a compliant business solution with 
common business processes and data standards for the following business 
functions within budget execution requirements: procure to pay; order 
to fulfill; acquire to retire; budget to report; cost accounting; 
grants accounting; time and attendance; and resales accounting. Each 
defense agency is committed to leveraging its resources and talents to 
build an integrated system that supports standardized processes and 
proves that the DOD is capable of using a single architecture and 
foundation to support multiple, diverse components.
Continuous Process Improvement/Lean Six Sigma
    LSS is an important part of the Department's CPI effort. A 
disciplined improvement methodology, LSS has been endorsed by DOD 
leadership as the means by which the Department will become more 
efficient in its operations and more effective in its support of the 
warfighter. By focusing on becoming a ``lean'' organization, the DOD 
will eliminate waste, improve quality and put its resources and capital 
to the best use in meeting the goals of the ETP. On April 30, 2007, the 
Deputy Secretary of Defense instructed the Office of the Deputy Under 
Secretary of Defense-Business Transformation to create a DOD CPI/LSS 
Program Office to drive DOD-wide CPI/LSS activities. The Department has 
made significant progress in implementing LSS. In cooperation with the 
Defense Acquisition University, Green Belt, Black Belt, and Executive 
training class have been created, training and project metrics from all 
OSD and Component organizations are being tracked, and many DOD-wide 
projects that will drive wholesale change are being executed.
    LSS is being adopted at all levels of the Department. The Army, for 
instance, estimates that in calendar year 2007 alone, they achieved an 
estimated savings of $1.3 billion through the use of CPI. Furthermore, 
the components as a whole have almost 20,000 active and completed LSS 
projects.
    One of the most ambitious process improvement projects that has 
been undertaken to date is an end-to-end reform of the governmentwide 
security clearance process. DOD is working in close cooperation with 
the Director of National Intelligence, the Office of Management and 
Budget, and the Office of Personnel Management on this effort. The 
interagency team has been charged with creating a new clearance process 
that is fair, flexible, and adaptive, managed and highly automated end-
to-end, reciprocal, and delivering timely, high-assurance security 
clearances at the lowest reasonable cost.
Component Accountability
    In partnership with the components, the Department has taken major 
strides in business transformation at all levels. The Department has 
created an environment in which each level of the DOD organizational 
structure, component, enterprise, or other, can focus on those 
requirements specific to their level, with oversight and assistance 
provided by the Office of Business Transformation and the Business 
Transformation Agency. This system of tiered accountability encompasses 
the broad area of policy setting; the detailed establishment of process 
and data standards; as well as the ultimate execution of business 
operations.
Business Transformation Agency
    The Business Transformation Agency continues to be an integral part 
of our business transformation efforts. In the span of less than 2 
years, the BTA has gained a significant robust and organic capability 
to manage and oversee the Department's transformation efforts. In 
February 2006, the first permanent BTA Director was selected, providing 
a constancy of leadership and a focus for enterprise-wide 
decisionmaking across the Department. Additionally, using the 
congressional special hiring authority for highly qualified experts 
(HQEs), BTA has created a complementary workforce composed of career 
civilians, term-appointed civilians, military members and contractors 
who have collectively contributed to our continuing progress in 
assuring standardization and mitigating the risk associated with large 
business systems implementations across the DOD. We appreciate 
Congress' recognition of the need to develop a multi-dimensional 
workforce and the continued support for hiring HQEs as an integral part 
of maintaining transformation momentum.
Working Relationship with the Government Accountability Office and the 
        Office of Management and Budget
    DOD regularly and proactively engages with GAO and OMB to 
communicate its progress and achievements in defense business 
transformation, and both organizations continue to be constructive 
partners in our overall transformation effort.
    GAO has acknowledged the Department's progress in several reports 
over the past 2 years. GAO's May report, entitled ``DOD Business 
Systems Modernization: Progress Continues to Be Made in Establishing 
Corporate Management Controls but Further Steps are Needed'' (GAO-07-
733) was the most positive NDAA Compliance report the Department has 
received to date, and contained a single new recommendation and 
officially closed 10 others. GAO stated the following:

          Given the demonstrated commitment of DOD leadership to 
        improving its business systems modernization efforts and its 
        recent responsiveness to our prior recommendations, we are 
        optimistic concerning the likelihood that the department will 
        continue to make progress on these fronts.

    The Department has also been in regular dialogue with OMB regarding 
a number of transformation initiatives. DOD and OMB are working closely 
together to bring increased capabilities to the entire Federal 
Government. OMB is also helping DOD leverage lessons learned from 
initiatives across the Federal space.
    We continue to welcome GAO and OMB's insight, as well as that of 
all our government partners, as we work together to accomplish our 
transformation priorities and achieve our shared goals.
                               conclusion
    We are pleased with our progress in our business transformation 
efforts and that this progress has been recognized by our oversight 
bodies. However, aligning the strategy, controls, people, processes, 
and technology to truly effect enterprise-wide change in an 
organization as large and complex as the DOD is an enormous 
undertaking, which has also been recognized by GAO and OMB. The 
challenges that business transformation faces should not be 
underestimated. We believe that our persistent focus on accelerating 
the pace of change the Department will continue to make steady and 
significant progress, achieving tangible results and positive business 
outcomes.
    We appreciate and value the support of Congress over the last 
several years as we have established new governance and discipline in 
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 Akaka. Thank you very much, Secretary Brinkley.
    Now Secretary Kunkel.

   STATEMENT OF PETER E. KUNKEL, PRINCIPAL DEPUTY ASSISTANT 
 SECRETARY OF THE ARMY FOR FINANCIAL MANAGEMENT AND COMPTROLLER

    Mr. Kunkel. Chairman Akaka, Senator Thune, my name is Peter 
Kunkel, and I'm the Principal Deputy Assistant Secretary of the 
Army for Financial Management and Comptroller.
    Thank you for this 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, but I'll 
focus my comments today on four achievements since the last 
hearing in November 2006, and three improvements planned for 
this year.
    First, in November 2006 we reported that the General Fund 
Enterprise Business System (GFEBS) completed a successful 
technology demonstration, and we committed to completing the 
full GFEBS blueprint by May 2007. This blueprint guides 
software development and identifies additional opportunities 
for business process improvements. The GFEBS blueprint is 
complete. Furthermore, we have increased the number of systems 
marked for retirement, once GFEBS is implemented, from the 87 
reported in November 2006 to 90 today.
    Second, since November 2006, the Army has significantly 
increased the amount of business transacted via electronic 
commerce. For example, electronic processing of travel claims 
grew by 44 percent; and electronic invoicing by 150 percent. 
Furthermore, with support from the Treasury and the Federal 
Reserve Bank, we have completed deployment of stored-value card 
technology in Iraq and in Afghanistan, resulting in a 70 
percent reduction in cash payments, and nearly $630 million in 
electronic funds transfers.
    Third, in November 2006 the Army Corps of Engineers 
submitted its fiscal year 2006 civil works financial statements 
to the DOD Inspector General. The audit work is complete, we 
expect to receive formally a qualified opinion this March. 
Qualification concerns treatment of certain assets balances for 
property acquired prior to 1998. Based on corrective actions 
implemented, we are confident that the qualification will be 
removed, enabling an unqualified opinion for the fiscal year 
2007 statements.
    It's important to note this achievement. The Army Corps of 
Engineers receives nearly $6 billion in annual civil works 
appropriations, and manages nearly $40 billion in total assets, 
making it one of the largest executive branch entities to 
receive a favorable audit opinion.
    Fourth, over the past year, we have been engaged in an 
effort to improve supply-chain management, and in June, 
successfully implemented the so-called Funds Control Module. 
The Funds Control Module is a bridge between unit-level 
logistics and the Army financial system. This Federal Financial 
Management Improvement Act-compliant system verifies funds 
availability and provides real-time, auditable asset 
accountability for the $20 billion expended annually by the 
Army for supplies and equipment.
    I'd now like to describe three financial management efforts 
underway within the Army in 2008.
    First, we are collaborating with the BTA to pilot 
electronic funds transfer to Iraqi vendors through the 
Commanders' Emergency Response Program. If successful, we will 
expand electronic payments to boost the nascent Iraqi banking 
infrastructure and reduce the need for cash in a deployed 
environment.
    Second, in another example of collaboration with the BTA, 
we look forward to completing the first of five testing phases 
on the DIMHRS. Progress in this first phase is positive, and 
indicates that we will achieve successful deployment in 
November. The Army fully resourced DIMHRS requirements in the 
fiscal years 2008 and 2009 budgets to ensure that DIMHRS 
progress stays on track.
    Third, we've started to build GFEBS Increment 2, which will 
deploy to installation management activities at Fort Jackson in 
November of this year. Increment 2 fully complies with the most 
current version of the BTA's Business Enterprise Architecture 
and the DOD Standard Financial Information Structure, ensuring 
interoperability across all business domains. GFEBS is fully 
resourced in fiscal years 2008 and 2009.
    Mr. Chairman, I want to thank you and the committee for 
holding this hearing, and I'd like to emphasize that the Army 
shares your objective of sustaining the existing momentum into 
the next administration. With Congress's continued support and 
stable funding, the BTA's leadership, and oversight within the 
Army, we will improve our business systems and practices. We're 
thoroughly committed to this effort, and I look forward to your 
questions.
    [The prepared statement of Mr. Kunkel follows:]
                   Prepared Statement by Peter Kunkel
    Chairman Akaka, Senator Thune, distinguished committee members--I 
would like to thank you for this opportunity to discuss Army business 
transformation and financial management improvements. As the Principal 
Deputy Assistant Secretary for Financial Management and Comptroller, I 
assist the Assistant Secretary of the Army and the Secretary of the 
Army with oversight of the Army's financial management and business 
transformation activities.
    As the Army continues combat operations in Iraq and Afghanistan, we 
are also transforming business processes and improving financial 
management. Our financial management transformation efforts support the 
Department of Defense Enterprise Transition Plan and comply with the 
Department's enterprise-wide standards, including the Business 
Enterprise Architecture (BEA) and Standard Financial Information System 
(SFIS). Our efforts are managed through a disciplined process that is 
guided by our audit readiness plan.
    Since the November 2006 hearing, we have achieved steady progress 
in transforming the Army's financial management systems and processes. 
The details of these improvements are enumerated in the Army's portion 
of the September 2007 DOD Enterprise Transition Plan (ETP). I would, 
however, like to take the opportunity to highlight a few of these 
improvements.
    The Army's Logistics Modernization Program (LMP) is the strategic-
level building block of the Army's transition to a single logistics 
enterprise. We successfully improved LMP to comply with the majority of 
applicable financial requirements directed by the Federal Financial 
Managers Improvement Act (FFMIA) as validated by the U.S. Army Audit 
Agency. Full FFMIA compliance permits fielding of LMP throughout the 
Army.
    The Deployed Theater Accountability System (DTAS) is the world's 
first enterprise-wide Secret Internet Protocol Router Network personnel 
tracking system. It provides commanders with real-time data for 
deployed military personnel, civilians, contractors and foreign 
nationals in theater. In the past year we rolled out an expanded 
version to meet additional requirements from the current theater of 
operations. We also successfully completed a Joint Chiefs of Staff-
sponsored pilot test of DTAS as a potential joint personnel 
accountability solution.
    I also would like to highlight the Army's embrace of Lean Six Sigma 
(LSS) programs. One of our fundamental challenges is that, in spite of 
the Army's dramatic growth in total obligation authority over the past 
several years, we continue to confront a significant mismatch between 
our resourcing requirements and our funding levels. We have turned to 
LSS to help reduce these requirements while still accomplishing the 
mission in a timely manner. LSS is transforming Army business processes 
and functions so that we provide greater value and responsiveness to 
customers while reducing cycle time and cost. LSS also encourages a 
culture of continuous, measurable improvement. As one example, we 
recently were able to reduce the time to publish permanent orders from 
19.5 days to 3.7 days. Additionally, four Army depots have been awarded 
the prestigious Shingo Prize for Excellence in Manufacturing in 
acknowledgment of their reducing process cycle time, increasing 
efficiency and productivity, and reducing defects through the 
application of LSS principles.
    In fiscal year 2007, the Army significantly increased the volume of 
financial business transacted via electronic commerce. For example, we 
processed nearly 800,000 travel orders and payments electronically 
through the Defense Travel System. We submitted approximately 140,000 
invoices electronically to the Defense Finance and Accounting Service 
(DFAS) using Wide Area Work Flow. In addition, in partnership with the 
Department of Treasury and the Federal Reserve, we implemented stored 
value card electronic capabilities in the Iraq and Afghanistan 
theaters. Stored value cards employ electronic funds transfer (EFT) 
technology, thereby eliminating a soldier's need for check cashing and 
cash payments at Army and Air Force Exchange Service facilities.
    Improvements in all of these areas are planned for fiscal year 
2008.
      progress in developing and implementing business enterprise 
                    architecture and transition plan
    The Army's enterprise architecture is aligned with the Department's 
federated approach to business system modernization. We established 
business area domains in conformance with the Department's overall 
domain structure. Each domain is responsible for developing a business 
system transition plan and a systems architecture that aligns with the 
Department's ETP and BEA. Mature architectures have been developed for 
the financial management and logistics fields. We are adopting the DOD-
wide human resources solution in the form of the Defense Integrated 
Military Human Resources System.
    Under oversight of the Army's Chief Information Officer, we 
implemented a disciplined portfolio management process that requires 
each business domain to perform a complete inventory of all business 
systems within its purview and to register the systems in a single 
Army-wide portfolio. According to the Army's Chief Information Officer, 
the portfolio management effort enabled the Army to reduce the total 
system inventory by 1,500 systems from 3,200 to 1,700 systems. An 
additional 300 Army-wide business systems have been marked for 
retirement, pending the development and implementation of modern 
replacements.
    By adopting the Department's business domain construct and 
federated approach to modernizing business systems; creating business 
system transition plans; aligning architectures with the BEA; and 
managing business systems investments through a disciplined portfolio 
management process, the Army will be able to comply with section 332 of 
the National Defense Authorization Act (NDAA) for Fiscal Year 2005. We 
already have scrutinized more than 100 major business system 
modernization efforts and received approval from the Defense Business 
Systems Management Committee (DBSMC) to continue these important 
transformational programs.
    The Deputy Under Secretary of the Army is responsible for ensuring 
effective execution of our enterprise architecture and modernization 
efforts across all business domains. This senior official also is the 
Army's DBSMC representative. Governance at the Deputy Under Secretary 
level enables the Army to implement sustainable business process 
improvements and to develop compliant business systems.
    In this context the Army has developed and is implementing a 
comprehensive financial improvement and audit readiness plan to guide 
financial modernization activities. This integrated plan outlines 1,947 
specific actions needed to improve financial accountability and 
reporting, and assigns responsibility for completion of these tasks to 
20 organizations within the Army and DOD. We have completed 673 of 
these tasks with independent verification by the Army Audit Agency. The 
Army's financial improvement plan is a component of the DOD Financial 
Improvement and Audit Readiness Plan and the ETP.
    The Department's Inspector General reviewed our audit readiness 
plan and found that the plan sufficiently captures all actions 
necessary to resolve problems in obtaining an audit opinion. The plan 
provides a foundation to improve accountability and financial reporting 
within the Army, and has yielded tangible, sustainable results. The 
Inspector General reviewed our audit plan and identified areas needing 
improvement. We have substantially resolved the Inspector General's 
concerns, and are currently awaiting their final report, which we 
expect will reflect favorably on the efficacy of our plan. The plan 
provides a foundation to improve accountability and financial reporting 
within the Army, and has yielded tangible, sustainable results.
    For example, we anticipate, based on preliminary reports, that the 
Army Corps of Engineers will receive a qualified audit opinion of its 
fiscal year 2006 Civil Works financial statements when the Inspector 
General releases its opinion in March 2008. Civil Works is a large 
financial entity within the Army comprising $5.9 billion in annual 
appropriations, $44.5 billion in total assets and $26.7 billion in 
total property, plant and equipment. The Army Corps of Engineers has 
the largest property, plant and equipment asset base of any agency 
within the Executive Branch receiving a favorable audit opinion, and is 
the seventh largest in terms of annual appropriations. We have 
corrected the conditions linked to the qualified opinion of the fiscal 
year 2006 financial statements, and expect to receive an unqualified 
opinion for fiscal year 2007.
    We continue to implement corrective actions identified in our 
improvement plan. In November 2006 we reported to the committee the 
completion of 150 of the plan's tasks during fiscal years 2005 and 
2006, resulting in improved financial management across the Army. With 
the successful implementation of the funds control module, we finished 
an additional 95 tasks during fiscal year 2007, for a total of 673 
tasks completed since the plan's inception. As a result of these 
changes, obligations for $26 billion in annual supply transactions were 
delivered in real time, auditable electronic commerce processes were 
implemented, and accountability of general equipment and real property 
was improved.
    The Army's financial improvement and audit readiness plan is 
important to ensuring compliance with U.S.C. 2222. U.S.C. 2222 
prohibits the Department from obligating funds for preparing, 
processing or auditing financial statements until the proposed 
activities are consistent with the Department's financial improvement 
plan, and are likely to provide sustained improvements to internal 
controls. All 1,947 tasks contained in our financial improvement plan 
are designed to provide sustainable improvements when implemented. Each 
action is focused on correcting deficient processes and systems, and 
will result in long-term benefits when completed, including generation 
of reliable and complete financial management information.
  progress in complying with legislative requirements for obligating 
        funds that support systems development and modernization
    Section 332 of the fiscal year 2005 NDAA requires the approval of 
the Defense Business System Management Committee (DBSMC) for all 
obligations for business system modernization that exceed $1 million. 
Additionally, modernization must align with the Department's BEA. The 
Army implemented a tiered accountability process to meet this 
requirement.
    Army domain owners represent the first tier of accountability. They 
are responsible for developing a transition plan and domain 
architectures, and ensuring that all domain business systems are 
categorized and included in the Army-wide business systems portfolio. 
Each domain owner is accountable for ensuring that 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 Chief Information Officer, who is the pre-certification 
authority for systems modernization investments and the second 
accountability tier, for review and approval. The Deputy Under 
Secretary of the Army for Business Transformation is the third 
accountability tier and serves as the Army's representative to the 
DBSMC. The Deputy Under Secretary ensures that each modernization 
request is aligned with the Army's Business Mission Area, presents the 
Army's modernization requirements to the DBSMC for approval, and 
requests DBSMC authorization to incur obligations supporting 
modernization efforts.
    This tiered approach ensures a thorough review of requirements and 
that appropriate approvals are obtained for our modernization efforts, 
thereby significantly improving business systems modernization.
                              cost culture
    The Army also is making a concerted effort to inculcate a ``cost 
culture'' throughout its leadership in order to manage costs 
effectively. In a cost culture, the focus is: ``How do I get the most 
readiness, the most output, the right materiel and the right personnel 
for the dollars I am given?'' The mantra is ``accomplish the mission 
considering cost.'' That means everyone at all leadership levels 
actually understands, and takes into account during the decision-making 
process, what things are going to cost. Spending decisions are no 
longer made in a vacuum.
    Instituting a cost culture is essential to the success of the Army. 
Cost culture principles apply to both the operating and generating 
forces. They will help us to transform more of the Army and to do so 
more quickly.
    The Army's Strategic Leadership Development Program has been 
revamped to provide the Army's brigadier generals more instruction in 
cost management. In addition, the Army is working to promote 
consideration of cost throughout its operational leadership. The 
Installation Management Command will provide cost management 
instruction to garrison commanders, and recently conducted five 
sessions of cost management training at the Installation Management 
Institute.
               activities planned during fiscal year 2008
    The Army has three key financial improvement activities planned for 
calendar year 2008. The first is to complete development and fielding 
of General Fund Enterprise Business System (GFEBS) Increment 2. The 
second is to complete all testing, fielding and organizational 
restructuring in support of the Defense Integrated Military Human 
Resource System (DIMHRS). Our third key activity is to implement a 
pilot program supporting electronic payments for the Commander's 
Emergency Response Program (CERP) in Iraq. All three efforts are fully 
resourced in fiscal years 2008 and 2009.
    GFEBS constitutes a significant undertaking in the modernization 
and improvement of Army financial management. In November 2006, we 
reported to the committee our positive results in completing the GFEBS 
Increment 1 technology demonstration; committed to completing the full 
GFEBS solution blueprint by May 2007; and identified how the Single 
Army Financial Enterprise architecture was aligned with the DOD 
enterprise architecture and guided overall program development.
    The full GFEBS solution blueprint was finished and the Army has 
begun to build Increment 2, which we expect to test and field at Fort 
Jackson, SC, by November 2008. Increment 2 will manage the Army's $30 
billion real property and general equipment portfolios and support 
installation management activities, including financial processes for 
command and staff, personnel and community, information technology, 
operations, logistics, engineering, resource management, acquisition 
and health services. It also will support financial activities at the 
DFAS and Army headquarters activities. Increment 2 will fully subsume 
90 legacy business systems.
    GFEBS Increment 2 fully complies with the most current version of 
the Business Transformation Agency (BTA) BEA. GFEBS also implements the 
DOD SFIS, the Department's standard financial schema which enables 
interoperability across the Department.
    The Army is looking forward to the testing and implementation of 
the DIMHRS this year. DIMHRS will eliminate 66 non-integrated legacy 
systems, and will provide an integrated personnel and payroll system 
that meets the human-resource management needs of the Active component, 
the National Guard, and the U.S. Army Reserve. In addition to 
integrating personnel and payroll activities for all Army components in 
a single database, DIMHRS also will provide soldiers expanded self-
service capabilities that eliminate the need to wait in long lines for 
personnel and financial services. Based on progress reported by BTA, 
DIMHRS is on track for delivery in October. Preliminary results of the 
first of five testing phases are encouraging.
    The Army, in partnership with the DOD BTA and the DFAS, will begin 
acceptance testing of DIMHRS in April and full DIMHRS fielding in 
October 2008. The Army is working with BTA and DFAS to identify and to 
change organizational and business constructs in order to leverage the 
best business practices inherent in the DIMHRS solution.
    The Army, BTA and DFAS also are collaborating on a pilot initiative 
to make payments by EFT for activities associated with the CERP. CERP 
is helping to win trust and rebuild civilian life in Iraq and 
Afghanistan by providing payments from appropriated funds directly to 
Iraqi and Afghan citizens engaged in civil infrastructure activities. 
The preponderance of these payments is made in cash by U.S. service men 
directly to the payee. To eliminate inefficiencies inherent in cash 
transactions, the Army, DFAS, and BTA this year will try EFT payments 
for CERP-related transactions. The pilot will be conducted in Iraq and 
will make a material contribution to the creation of a modern banking 
infrastructure there. There are many obstacles to overcome in this 
effort, including local customs, banking infrastructure issues and 
incorporation of robust management controls. We are firmly committed to 
executing the pilot program to improve CERP's efficiency and to support 
Iraq's nascent banking system.
                               conclusion
    The Army appreciates the committee's support and oversight of 
activities to improve and to modernize financial management and 
transform business processes within the Army. We share the committee's 
objectives in developing sustainable, enduring solutions designed to 
augment the reliability, timeliness, and accuracy of the Army's 
financial management information. I look forward to working with the 
committee throughout the year. Thank you again for the opportunity to 
be here today.

    Senator Akaka. Thank you very much, Secretary Kunkel.
    Now we'll hear from Secretary Brook.

STATEMENT OF HON. DOUGLAS A. BROOK, ASSISTANT SECRETARY OF THE 
         NAVY FOR FINANCIAL MANAGEMENT AND COMPTROLLER

    Mr. Brook. Thank you very much Mr. Chairman and Senator 
Thune. Thank you for inviting us here today to discuss our 
respective Services' progress in transforming our business 
processes.
    The Department of the Navy has made progress, I believe, 
but there is still much work ahead of us. For example, the Navy 
is implementing a major Enterprise Resource Planning (ERP) 
application with 14,000 users online today at 9 sites, and 
plans to have 10,000 more online by the end of this year. But, 
this implementation is not yet fully accomplished, and there 
are issues remaining to be addressed.
    Second, the Marine Corps is well-positioned to achieve a 
favorable audit opinion on at least one financial statement by 
the end of this year, but we have not achieved auditability, 
and there is additional work to do.
    The Navy has established, and is executing, an oversight 
process that conforms with the investment review criteria first 
mandated by Congress in the NDAA of 2005. Our transformation 
activities are subject to oversight by the Defense Business 
Systems and Management Committee, but we do not have a 
governance structure for transformation that mirrors that of 
OSD.
    GAO has offered recommendations for process changes and 
organization changes, and Congress has included provisions, in 
the last several NDAAs, that align with those recommendations. 
The Department of the Navy understands these recommendations, 
we understand the provisions of law, and we continue to make 
progress toward improving the business of the Navy and the 
Marine Corps.
    One of the recent criticisms by GAO of DOD's approach to 
business transformation was a perceived overemphasis on 
systems, perhaps at the expense of other aspects of 
transformation. So, let me, accordingly, broaden the picture of 
business transformation in the Department of the Navy, beyond 
systems.
    In 2002, the Chief of Naval Operations laid out the Sea 
Power 21 Vision that included a business transformation 
element, known then as Sea Enterprise. The goal of Sea 
Enterprise was cost-consciousness, to find more efficient ways 
of doing the Navy's business. Since then, the program has 
matured into Navy Enterprise. Conceptually viewing the Navy as 
a matrix of support providers and combat capability providers, 
Navy Enterprise is looking beyond traditional functional and 
organizational stovepipes, and, instead of mission at any cost, 
Navy Enterprise is seeking readiness at the right cost. In my 
mind, this represents a cultural transformation that involves 
systems thinking with an eye on business functions, while still 
ensuring operational needs are met.
    Disciplined, documented, and controlled processes are the 
hallmark of our Nation's maritime force. They are what make us 
effective at sea and in expeditionary maneuvers ashore. Such 
thinking has not always consistently translated into the 
business environment, but I believe there is evidence that that 
tide is turning. The Secretary of the Navy challenged the 
Department to achieve greater efficiency, and the Department 
responded by adopting Lean Six Sigma as the best-practice tool 
of choice. Thousands of projects, large and small, have been 
conducted, with positive results.
    On the financial management side, the Department's 
Financial Improvement Program (FIP) has identified areas where 
enhanced internal controls and better-defined business 
processes can support audit readiness. These improvements in 
internal controls are consistent with OMB Circular A-123 and 
are clearly in line with the spirit of the 2006 and 2007 NDAAs.
    Not only is the Department working to create a culture and 
attitude of business transformation, it is dedicated to 
aligning its efforts with DOD. Navy's FIP integrates with DOD's 
FIAR Plan, and we work closely with the OSD Comptroller and 
other military Services to better align our processes and 
internal control improvement efforts with the broader DOD 
business transformation plans.
    The Department of the Navy embraces DOD's federated concept 
of tiered accountability. This federated approach requires that 
enterprise-wide systems are used for enterprise-wide functions, 
and that they adhere to DOD-wide standards, but also recognizes 
the unique needs of the component in support of their Title 10 
requirements.
    The Navy believes it has partnered well with the BTA; most 
recently and most specifically, in reviewing and validating 
Navy's ERP processes.
    Finally, in terms of organization, the Navy's Business 
Transformation Council was chartered in 2006 to bring senior 
executive leadership to business transformation issues and to 
provide enterprise-wide policy direction and execution 
oversight. It is chaired by the Under Secretary of the Navy. 
This Council is positioned to undertake governance of business 
transformation in the Department of the Navy.
    In addition, the Navy has created the Functional Area 
Management Council to involve process owners in enterprise 
transformation. The functional area managers are senior leaders 
within organizations responsible for acquisition, financial 
management, and logistics. They are charged with overseeing the 
reduction and consolidation of information technology (IT) 
investments consistent with Department of the Navy and DOD 
strategy and policy. These functional area managers are aligned 
to their corresponding DOD investment review boards, with 
constant communication maintained via our Chief Information 
Officer's (CIO) staff.
    Mr. Chairman, the Department of the Navy has taken 
important steps in transforming its business, but recognizes 
that much work remains to be done. In my recent return to the 
Pentagon, I perceived that real progress has been made on 
multiple fronts; systems, processes, organizational structures, 
culture, and audit readiness. The Navy is balancing the 
competing demands of doing it quickly and doing it well. The 
Department is committed to the idea of business transformation 
and to achieving transformation through a disciplined and 
integrated approach. GAO and Congress have provided helpful 
templates and recommendations, and BTA has been a valuable 
partner.
    We appreciate this committee's interest and support, and we 
look forward to our continued cooperation with you and with our 
colleagues here at the table. I would be pleased to respond to 
your questions, Mr. Chairman.
    [The prepared statement of Mr. Brook follows:]
                Prepared Statement by Hon. Douglas Brook
    Good afternoon Mr. Chairman, Senator Thune, and distinguished 
members of the subcommittee on Readiness and Management Support. Thank 
you for inviting me to be with you today and to discuss the Department 
of the Navy's (DON) status and progress in transforming its business 
processes in support of the Navy-Marine Corps team. The Department has 
made progress but there is still much work ahead of us. For example:

         The Navy is implementing a major Enterprise Resource 
        Planning (ERP) application with 14,000 users online today at 9 
        sites and plans to have thousands more online by the end of 
        this year.
         The Marine Corps is well positioned to be the first 
        military Service in the Department of Defense (DOD) to achieve 
        a favorable audit opinion of at least one financial statement 
        and other material components of its statements by the end of 
        the year.

    The Government Accountability Office (GAO) has devoted much 
attention to the pressing issues related to business transformation in 
DOD and has provided the Service components and DOD with 
recommendations for process changes and organizational changes. 
Specifically, GAO has recommended improvements in the areas of:

         Management structures and policies for information 
        technology investment management, and
         Service transformation plans and architectures that 
        are fully integrated with DOD plans and architectures

    Provisions of the last several National Defense Authorization Acts 
align with those recommendations. The DON understands these 
recommendations and provisions and continues to make progress toward 
improving the business of the Navy and Marine Corps.
                                systems
    The last time Defense business transformation was discussed by this 
committee, the DON's representative was the Chief Information Officer. 
He related the Navy's and Marine Corps' plans and progress toward 
creating a seamless infrastructure, process improvements for the 
management of information technology investments, and enterprise-wide 
governance bodies.
    He spoke of the plans and promise of Navy ERP and I can report 
today that implementation has begun. As we speak, 14,000 employees of 
the Naval Air Systems Command (NAVAIR) are using an ERP system for 
payroll, accounting, and other business functions. Valuable lessons 
from the ERP pilot projects were incorporated. This investment provides 
the cornerstone of a better integrated, more automated and better 
controlled business environment. It is compliant with the processes and 
accounting standards delineated in the DOD business enterprise 
architecture. By the end of the year, DON plans to have approximately 
10,000 additional employees using this ERP. With DOD oversight, this 
Major Automated Information System achieved Milestone C approval 
(limited deployment based on achieving programmatic objectives) on time 
and is currently serving as the financial system of record at NAVAIR 
for both general fund and working capital fund activities. The current 
program of record, when completed in 2012 will account for nearly 50 
percent of the Navy's total obligation authority. We are looking to 
further develop this financial backbone as quickly as prudent 
management and resources allow.
    The DON has been an active participant in the Defense Business 
Systems Management Committee (DBSMC), represented initially by the 
former Under Secretary with continuity provided by the Chief 
Information Officer (CIO). The DON has established and is executing an 
oversight process to conform with the investment review criteria first 
mandated by Congress in the National Defense Authorization Act for 
2005.
    The DON Business Transformation Council (BTC), which I will discuss 
later in more detail, was chartered to bring senior executive 
leadership to bear on business transformation issues and to provide 
enterprise-wide direction and execution oversight. The Functional Area 
Management (FAM) structure was created to involve process owners in 
enterprise transformation.
    The FAMs are led by senior leaders within organizations responsible 
for functional areas such as acquisition, financial management, and 
logistics, and are charged with overseeing the reduction and 
consolidation of information technology investments in their areas 
consistent with Departmental and DOD strategy and policy.
    Progress continues to be made toward creating a seamless 
infrastructure and to develop enterprise-wide standards. The benefit of 
doing so is obvious. Given the myriad functional tasks of the 
Department, its expeditionary nature, and organizational complexity, 
creating a standard architecture is a challenge no corporate entity has 
ever faced. The Department is moving forward, but the complexity cannot 
be overcome quickly.
    One of the recent criticisms by GAO of DOD's approach to business 
transformation was a perceived overemphasis on systems and technology 
at the expense of other aspects of transformation. Let me accordingly 
broaden the picture of business transformation in the DON.
                           process and people
    In 2002, the Chief of Naval Operations laid out the Sea Power 21 
vision that included a business transformation element known as Sea 
Enterprise. The goal was cost-consciousness, to find more efficient 
ways of doing the Navy's business. Since then, the program has matured 
into Naval Enterprise. Teams are actively seeking the links between 
processes, funding levels, asset utilization, manpower and combat 
readiness. Conceptually viewing the Navy as a matrix of support 
providers and combat capability providers, they are seeing beyond 
functional and organizational stovepipes. Instead of mission at any 
cost, we are seeking readiness at the right cost. Such a cultural 
transformation of improved systems thinking with an eye on business 
functions is an important enabler and is critical for ensuring 
operational needs are met while implementing change.
    Disciplined, documented and controlled processes are the hallmark 
of our Nation's maritime force; it makes them effective at sea and 
expeditionary maneuver ashore. Such thinking has not consistently 
translated into the business environment, but there is evidence that 
tide is turning.
    The Secretary of the Navy challenged the Department to achieve 
greater efficiency and improved effectiveness. The Department adopted 
Lean Six Sigma as a best practice tool of choice. Thousands of 
projects, large and small, have been conducted with positive results. 
For example:

         The Naval Sea Systems Command conducted several value 
        stream analyses designed to achieve annual cost reductions of 
        $200 million in Virginia class submarine construction. 
        Streamlining construction planning processes can save over $69 
        million.
         PEO (Aircraft Carriers) reviewed the Aircraft Carrier 
        Mid-Life Refueling Complex Overhaul designed to increase 
        aircraft carrier availability. Two major processes (delivery to 
        Post Shakedown Availability and Selective Restrictive 
        Availability) can be incorporated into other processes or 
        eliminated, resulting in 10 months of additional operational 
        time; the equivalent of an extra deployment over the life of a 
        carrier.

    The Department's financial statement audit readiness plan 
identified areas where enhanced internal controls and better defined 
business processes can support audit readiness. Such improvements in 
internal controls are consistent with Office of Management and Budget 
Circular A-123 and are clearly in line with the spirit of the 2006 
(section 376) and 2007 (section 321) authorization act provisions that 
financial management improvement activities should improve controls and 
result in sustained improvement.
    The Department is not only working to create a culture and attitude 
of business transformation within its military services, it is 
dedicated to aligning its efforts with the rest of DOD. The DON 
Financial Improvement Program integrates with the DOD Financial 
Improvement and Audit Readiness (FIAR) Plan. We work closely with 
Office of the Under Secretary of Defense (Comptroller) and other 
military Services to better align our process and internal control 
improvement efforts with the broader DOD business transformation plans. 
In the Marine Corps, a focused financial improvement initiative is 
positioning the Corps to be the first DOD military service that is 
``audit ready.'' The Marine Corps has made process standardization and 
increased internal controls the hallmark of its business transformation 
efforts. They can point to tangible benefits in terms of reduced 
reverted balances, reduced cost of financial processes, and improved 
transparency of financial information to inform resource allocation 
decisions.
    The DON embraces DOD's federated concept of tiered accountability. 
This federated approach requires that Enterprise wide systems are used 
for enterprise wide functions and adhere to DOD-wide standards, while 
also recognizing unique needs the components have to support title 10 
requirements. The Navy believes it has partnered well with the Business 
Transformation Agency, specifically in reviewing and validating Navy 
ERP processes. The DON Financial Improvement Plan aligns with OSD's 
FIAR Plan.
    Finally, in terms of organization, the DON BTC I mentioned earlier 
was chartered in 2006 to bring senior executive leadership to bear on 
business transformation issues and to provide Enterprise-wide policy 
direction and execution oversight. It is chaired by the Under Secretary 
of the Navy. The BTC can serve a role in the DON similar that served by 
the DBSMC for the DOD. The Functional Area Managers described 
previously are aligned to their corresponding DOD Investment Review 
Boards, and constant communication is maintained via the CIO's staff. 
The CIO office meets regularly with senior financial leadership to 
ensure projects are being executed under the framework of our emerging 
architecture and transition plans.
    The continuous efficiency-seeking activity of business 
transformation should be understood as a stewardship issue in support 
of the operating forces. The DON is responsible to the combatant 
commanders, the President, Congress, and the public to be a good 
steward of the resources it manages. DON is also responsible to support 
the varied requirements of the operating forces. The policies and 
processes of business transformation must align with and efficiently 
support operational requirements.
    Mr. Chairman, members of the subcommittee, the DON has taken 
important steps in transforming its business, but recognizes that much 
work remains. Real progress is being made on multiple fronts: systems, 
processes, organizational structures, culture, and audit readiness. The 
Navy is balancing the competing demands of doing it quickly and doing 
it well. The DON is committed to the idea of business transformation 
achieved through a disciplined and integrated approach. GAO has 
provided helpful templates and recommendations; BTA has been a valuable 
partner. The Department is dedicated to continuing to make 
transformational change in the management of its business systems. We 
appreciate this committee's interest and support in the matter and look 
forward to our continued cooperation. I would be pleased to respond to 
any questions you may have about the DON's business transformation 
initiatives.

    Senator Akaka. Thank you very much, Secretary Brook, for 
your statement.
    Now we'll hear from Secretary Gibson.

 STATEMENT OF HON. JOHN H. GIBSON, ASSISTANT SECRETARY OF THE 
       AIR FORCE FOR FINANCIAL MANAGEMENT AND COMPTROLLER

    Mr. Gibson. Mr. Chairman and Senator Thune, thank you for 
the opportunity to appear before the committee today.
    As the Under Secretary position within the Air Force is 
currently vacant, it is my privilege to discuss with you the 
Air Force's progress and support of DOD's business 
transformation and financial management efforts. Although the 
Air Force does not have an Under Secretary, the Air Force has 
established, and maintains, consistent processes in leadership 
emphasis to ensure successful and tiered governance of our 
ongoing business transformation efforts, as well as a solid 
architecture. This senior leadership oversight and emphasis 
function is crucial to ensuring we meet our business 
transformation and financial management challenges of the 
future. The Secretary of the Air Force, Michael Wynne, is 
actively involved with the governance and oversight of our 
transformation efforts.
    Since the last hearing on this issue, in November 2006, the 
Air Force has continued transforming our business operations 
and financial systems, and has made measurable progress. 
Ultimately, our goal of financial management improvement is 
timely, accurate, and reliable business information, as well as 
improving our ongoing business practices, yielding a more 
efficient and effective organization. Since 2006, we have 
enjoyed numerous successes.
    As an example, in late 2006 we completed an end-to-end 
review of our Air Force personnel claims process, a complicated 
set of procedures that regularly frustrated our servicemembers, 
consuming a significant amount of their time. In fact, Air 
Force personal claims processing had become so daunting that 
many members chose to avoid it altogether, which led our Air 
Force Judge Advocate Office to transform the universal 
experience of filing a moving claim. Using Air Force Smart 
Operations for the 21st Century principles, we stood up the 
Centralized Air Force Claims Service Center in March 2007, 
achieving final operating capability at Kettering, OH. With a 
staff that will ultimately number 107, the center replaced over 
300 personnel at 91 claims offices worldwide. But, most 
importantly for our airmen, the claims process is now simple, 
quick, and is being used in place of repeated trips to the 
legal office for briefings and paperwork.
    Today, airmen complete a streamlined form on the World Wide 
Web from their desk, home computer, or anywhere with Internet 
connectivity. The need for on-hand property inspections is 
reduced, and if they have questions, they can still call the 
Help Center, which is manned 24/7 by claims experts.
    To date, the center has serviced over 5,000 claims, with an 
average processing time of less than 10 days from online 
submission to payment, instead of 5 weeks, under the old 
process.
    Another good-news business transformation story directly 
relates to our troops serving in harm's way as we begin the 
deployment of the EagleCash Program at Air Force locations 
within the Operation Enduring Freedom and Operation Iraqi 
Freedom theaters of operation in 2007. EagleCash is a 
Department of Treasury stored-value card that eliminates the 
need for cash in deployed locations and allows our military 
personnel to link the card to their personal banking account. 
As a result, troops can now load funds to the card by using a 
self-service kiosk, and now our airmen don't have to carry hard 
cash around with them, as the stored-value card serves as 
electronic money. This program eliminates frequent visits from 
our deployed airmen to finance offices, thus saving valuable 
time of our deployed airmen, as well as our finance troops, 
allowing us all to focus on other pressing mission 
requirements. This program is expanding to seven additional 
locations, including four within Iraq, and, as a result, 
approximately 10,000 of our deployed troops are now using the 
card in lieu of cash.
    In September 2007, the new Air Force Financial Services 
Center became a reality as the facility opened at Ellsworth Air 
Force Base, SD. In its first phase, a central processing center 
for pay and travel vouchers went operational. The Air Force was 
honored that Senator Thune, Congresswoman Stephanie Sandlin, a 
representative from Senator Tim Johnson's office, and the 
Secretary of the Air Force, Mike Wynne, attended the ribbon-
cutting and recognized this significant accomplishment as we 
centralized pay and travel processing from 93 locations around 
the globe to a world-class, best-practice, shared service 
center.
    Going forward, we continue to work toward the second phase 
of the services center, which is a 24/7 contact center to 
handle pay and travel inquiries from over 300,000 military and 
civilian customers. All told, the services center will return 
598 manpower slots to the Air Force total force, valued at $210 
million, and, just as importantly, improves the customer 
service levels for all of our airmen.
    Also, as we progress into the second quarter of fiscal year 
2008, more than 200 airmen at the services center are now 
providing timely financial services for the Air Force major 
commands, covering 18 installations and 6 geographically 
separated units. It is very important to note, though the Air 
Force Financial Services Center allows for tremendous 
efficiencies and represents a huge transformation in the way we 
provide customer service in the backroom operations, 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 obtain the 
financial services in a personal manner.
    Finally, Mr. Chairman, I want to close by thanking you and 
the members of this committee for your continued support to 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. Air Force leadership and Air Force 
financial managers, working together with our colleagues 
throughout the DOD, continue our efforts to provide reliable, 
timely, and accurate financial and management information and 
analysis to enhance decisionmaking and continuous improvement 
in business operations, to improve effectiveness, efficiency, 
and customer service throughout the Air Force.
    I would like to conclude today by thanking this committee 
for your support during this important period of business 
transformation, and assure you we are doing our best to finance 
the fight.
    Thank you, again, for your consideration, and I look 
forward to your questions.
    [The prepared statement of Mr. Gibson follows:]
              Prepared Statement by Hon. John H. Gibson II
                              introduction
    Chairman Akaka and members of the subcommittee, as the Under 
Secretary position within the Air Force is currently vacant, I have the 
privilege to appear before you today to discuss the Air Force's 
progress in support of the Department of Defense's (DOD) business 
transformation and financial management efforts.
    Although the Air Force does not have an Under Secretary who would 
be designated as the Chief Management Officer as identified through the 
recently enacted 2008 National Defense Authorization Act legislation, 
we maintain consistent processes to ensure proper governance of our 
ongoing business transformation efforts. This Senior Leadership 
oversight function is crucial to ensuring we meet our business 
transformation and financial management challenges of the future. The 
Secretary of the Air Force, the Honorable Michael Wynne, has fulfilled 
this role and is actively involved with our transformation efforts.
    Over the past 4 years, the Air Force has continued to strengthen 
our enterprise governance process and ensured the involvement of Senior 
Leadership as we transform the business of the Air Force. For instance, 
cross-functional Senior Leadership participates in reviews of program 
and legacy system migration milestones as identified in our Enterprise 
Transition Plan (ETP). Through the established tiered accountability 
mechanisms, this metric review provides the Senior Leaders insight into 
potential impacts to deliver capabilities and costs that schedule 
delays may create. In 2005, Air Force Smart Operations for the 21st 
Century (AFSO21), launched by Secretary Wynne, extended common process 
re-engineering approaches beyond the business and combat support 
mission area and into the warfighting, intelligence and infrastructure 
mission areas. The ETP links our business transformation initiatives, 
monitored through our governance process, to strategy identified 
through our AFSO21 efforts. Additionally, the milestones that are 
reported in the ETP are tied to our Air Force Financial Improvement 
Plan that directly supports the Financial Improvement and Audit 
Readiness (FIAR) plan to achieve CFO Act compliance. Another area of 
interest for the Air Force is streamlining the acquisition process for 
business information systems, where we have been working with the 
Business Transformation Agency on refining and implementing the 
Business Capability Lifecycle (BCL) process. The Air Force nominated 
and has included its major Enterprise Resource Planning (ERP) Systems, 
Defense Enterprise Accounting and Management System (DEAMS) and 
Expeditionary Combat Support System (ECSS), in the BCL process.
    The Air Force has had significant operational successes in 
accordance with financial management transformation as highlighted in 
the ETP since late 2006 that I would like to also share with you today. 
For instance, we established the Air Force Financial Services Center 
(AFFSC) at Ellsworth Air Force Base (AFB), SD, that reached an Initial 
Operational Capability in October 2007. All told, the AFFSC returned 
598 manpower slots to the warfighter, valued at $210 million, and more 
importantly, improved the customer service levels received by our 
airmen. The Government Accountability Office in its October 2007 report 
provided the Air Force with valuable comments regarding the Information 
Technology Investment Management maturity model. Based on these 
comments, we conducted a Rapid Improvement Event in November 2007 to 
create an Air Force IT investment strategy. This strategy will link to 
the budget cycle, align to strategic objectives and enterprise 
architecture, and improve the Air Force's portfolio management process. 
Finally, one of our ERP systems, the DEAMS successfully deployed an 
initial spiral to users at Scott AFB.
    In order to improve investment governance across all Air Force IT 
systems, we are expanding upon the National Defense Authorization Act 
(NDAA) 2005 guidance to evaluate the Air Force inventory, to include 
Warfighting and Enterprise Information Environment Mission Area 
systems.
    I thank you again for this opportunity to share the great progress 
that the Air Force has made towards achieving our business 
transformation efforts.
                               governance
    In 2003,\1\ the Air Force began major, coordinated efforts to 
manage its business and combat support transformation across the 
enterprise through implementation of a consistent structure for 
business transformation. With the introduction of the NDAA of 2005, the 
Air Force expanded upon this structure and energized associated 
governance, programming and certification efforts. These enterprise-
level approaches grew with the implementation of AFSO21.
---------------------------------------------------------------------------
    \1\ Creation of the cross-functional Commander's IPT (CIPT) 
followed in 2004 by the Senior Working Group (SWG).
---------------------------------------------------------------------------
    Since the Air Force undertook these efforts, we have successfully 
managed our business and combat support transformation across the 
enterprise and now have a mature management environment, characterized 
by the following five elements:

          (1) Solid enterprise governance and senior leadership 
        involvement. The Secretary of the Air Force participates in the 
        Defense Business Systems Management Committee, which is an 
        Office of the Secretary of Defense level committee that 
        evaluates the development and modernization efforts of business 
        systems and investments, the actions of the Air Force Process 
        Council, and the operational decision process supported through 
        the Senior Working Group.
          (2) Sound investment selection and tracking mechanisms. We 
        have implemented a consistent process that will go beyond the 
        requirements of NDAA 2005. This process allows us to review 
        information technology investments for business systems, and 
        national security systems, and evaluate sustainment expenses on 
        systems.
          3) Enterprise methods for managing our processes and our 
        data. The Air Force methods consist of the Air Force Process 
        Council and AFSO21 on the process side and the Transparency 
        Integrated Product Team (TIPT) on the data side. The Secretary 
        of the Air Force is directly involved in the TIPT to emphasize 
        the importance of transparent, authoritative data.
          (4) Clear priorities for business transformation, as 
        documented in the ETP.
          (5) Strong engagement toward transformation within the 
        business information systems acquisition community. We have 
        established leadership forums created to support the deployment 
        of ERP systems and the migration towards a Service Oriented 
        Architecture (SOA). To emphasize the importance of this issue, 
        the Chief Air Force Acquisition Executive and Air Force Chief 
        Information Officer (CIO) outlined a commitment to the 
        application of open technology in the acquisition of 
        information technology assets in a joint memorandum issued this 
        past December.

    This management and governance environment has allowed the Air 
Force CIO to certify all business systems development and modernization 
spending in excess of $1 million. We employ a rigorous and repeatable 
review process that evaluates current and proposed investments to 
ensure compliance with the Business Enterprise Architecture (BEA), to 
eliminate unneeded or redundant capabilities, and to ensure that 
spending is aligned to DOD and Air Force transformation priorities. 
Additionally, the Air Force CIO has reviewed all IT business systems 
that are spending modernization dollars.
    When reviewing business system investments the Air Force seeks to 
ensure compliance to the Air Force Agile Combat Support Architecture 
(ACSA) in addition to the BEA. In 2007, we released the Air Force ACSA 
v4.0, a sub-enterprise-level architecture based on the Agile Combat 
Support Concept of Operations. It reflects corporate Air Force 
priorities and requirements for business and operational support 
systems, and provides a common framework for integration of functional 
domain planning. The Air Force employs a federated architecture; based 
on activity and capability alignment to both higher and lower level 
architectures. With the release of ACSA 4.0, Air Force has completed 
manual alignments of our enterprise architecture to the DOD BEA. 
Specifically, the Air Force has aligned functional capabilities as 
represented in the ACSA to DOD BEA Operational Activities. Functional 
architects (from areas such as acquisition, financial management, 
logistics, etc) contributed architecture content for functional 
capabilities, and continue to produce functional-level products.
    During fiscal year 2007, the Air Force developed a governance 
compliance framework to facilitate the review of all statutory 
requirements across all Air Force IT systems. The Air Force CIO has 
incorporated the compliance review of Federal Information Security 
Management Act, Privacy Act, Section 508, and Clinger-Cohen Act into 
the NDAA certification review in addition to architecture and BEA 
alignment. This repeatable process provides the Air Force with a 
single-point review of our IT systems on an annual basis.
    The Air Force maintains the Air Force Information Technology 
Investment Review Guide, which outlines the requirements and processes 
supported by the Air Force CIO on the certification and review of IT 
systems. This document undergoes a yearly update to ensure new 
requirements, procedures, improvements, and generally requested 
information are quickly available for our IT community.
    Now, I would like to take this opportunity to review with you our 
major successes and recent accomplishments with regards to strategic 
planning, business transformation, financial management and human 
capital.
                           strategic planning
    In the area of strategic planning, the Secretary of the Air Force 
has instituted process and organizational change across Core Business 
Mission areas, visibly committing our Service to continuous, efficient 
process improvement through the AFSO21 program. We have identified 
senior-level Process Owners, or Champions, 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 timely, 
accurate, and reliable information and integration within and between 
the Air Force and DOD, the Air Force Secretary has led the Transparency 
initiative. This initiative will enable the Air Force to identify, 
validate, and exploit data currently stored in systems throughout the 
Air Force in a SOA environment. The TIPT, chaired by the Secretary of 
the Air Force, oversees this effort that is focused on exposing 
authoritative data to improve information availability and visibility. 
Not only will information be available and visible, but there will be 
business rules and common vocabularies to make the data understandable. 
Currently, the Air Force is focused on:

          (a) Unit and personnel readiness for accurate reporting and 
        streamlined deployment planning
          (b) Flight Scheduling to reduce the financial burden posed by 
        duplicative systems and processes currently in place
          (c) Force presentation in support of joint initiatives such 
        as Global Force Management and Force Management Integration 
        Project, assisting joint warfighter planning
          (d) Personnel information demanded by all the other focus 
        areas and joint initiatives such as the Defense Integrated 
        Military Human Resource System

    Another key aspect of our business transformation strategy is the 
leveraging of information to transform global operations, one of our 
ETP priorities. To this end, the Air Force is implementing 
transformation through transparency using common, international 
standards (as much as possible), commercial products, and process 
reengineering to ensure the right data is available with the right 
level of protection and safeguards. Our infrastructure will leverage 
the work of the commercial sector--small reusable services registered 
and accessed in a fully discoverable, searchable metadata environment 
built using a SOA approach.
    Activities are underway to develop presentation services utilizing 
intuitive drag and drop methods to bind data to presentation objects, 
to build on the success of the Air Force's Financial Management 
Dashboard. Additionally, during summer 2007, the Air Force conducted a 
pathfinder effort to prove Air Force Automated Metadata Tagging can 
utilize a commercial off-the-shelf tool populated with an established 
vocabulary to obtain an information asset's subject matter metadata in 
a fraction of the time that it can be done manually--with more 
precision and accuracy. The Automated Metadata Tagging Pathfinder does 
this by inspecting the information within the asset and categorizing it 
within the vocabulary. Based on the success of that effort, DOD-CIO 
chartered a working group to develop the suite of services that could 
automatically tag information assets and register the discovery 
metadata into appropriate metadata registries.
    Another key component to the Air Force's IT strategic vision is the 
leveraging of process and vocabulary work being accomplished by 
Communities of Interest (COI) in order to define information sharing 
needs within the Air Force and DOD. COIs determine and document access 
and control restrictions to ensure users are authorized to view the 
data. COIs are governed through the Air Force TIPT under the direction 
of the Secretary. As such, there are five key TIPT pathfinder projects 
that will publish their vocabularies and data delivery services in the 
initial Air Force Metadata Environment (MDE). These pathfinders cross 
diverse information areas such as Finance, Individual Deployment 
Readiness, Flight Scheduling, and Global Force Management, proving the 
value of vocabulary development and data asset tagging as keys to 
information exchange. Additionally, through a DOD tasking, the Air 
Force will lead a multi-service project to further develop 
specifications for an automated metadata tagging service, demonstrate 
its use within a Joint COI, and deliver an acquisition strategy for the 
DOD Enterprise. In fiscal year 2008, the results of these pathfinder 
projects will be used to further develop and expand the Air Force MDE, 
which will allow discovery and delivery of the data assets to users and 
system developers throughout the Air Force and joint community. We will 
also establish an infrastructure to enable the discovered data to be 
presented in a flexible dashboard environment that can be customized 
and tailored in real time to match a user's operational needs. Finally, 
we will continue work with the DOD CIO, DISA, Services and others to 
develop and implement Net-Centric Data Strategy and Core Enterprise 
Services.
                        business transformation
    In the broad area of business transformation, the Air Force has 
also made great strides this past year. The Air Force has two ERP 
systems for the future--the ECSS and the DEAMS. For example, the ECSS 
initiated enterprise-level blueprinting, legacy system deconstruction, 
and pathfinder assessment and analysis efforts to redesign the business 
processes. ECSS also provides selection and configuration requirements 
for deployable information technology products such as ERP components, 
thereby providing the initial groundwork and planning to enable the 
transformation of the entire Air Force logistics operation.
    Additionally, a major business transformation success story is that 
of the Air Force Claims Service Center (AFCSC). The personal claims 
process had become so daunting that military members at times decided 
to avoid the process, which led Air Force/JA to transform the universal 
experience of filing a moving claim. Through JAG Corps 21, JA used 
AFSO21 principles to stand up the AFCSC in March 2007. The AFCSC 
achieved final operating capability at Kettering, OH. With a staff that 
will ultimately number 107, the Center replaced 300+ personnel at 91 
claims offices worldwide.
    For airmen, the claims process is now simple and quick. In place of 
repeated trips to the legal office for briefings and paperwork, airmen 
complete a streamlined form on the Web--from their desk, home computer, 
or anywhere with Internet connectivity. By uploading digital pictures 
of damaged items, they reduce the need for inspections. If they have 
questions, they can call an AFCSC help line, which is manned 24/7 by 
claims experts. To date, the Center has serviced over 5,000 claims with 
an average processing time of less than 10 days from online submission 
to payment, instead of 5 weeks under the old process!
    In addition, the Air Force has undertaken several key initiatives 
via the eLog21 campaign to ensure synchronization of one of the largest 
and most complex supply chains in the world. This will enable improved 
support for multiple simultaneous operations. To expedite 
transformation, the Air Force Global Logistics Support Center (GLSC) is 
being established concurrently with process reengineering that will tie 
together the re-engineered processes and coordinate provision of 
materiel to the warfighter by the supporting activities. Establishment 
of the GLSC is pivotal to eLog21 and begins the rational, incremental 
centralization of supply chain management.
    Additionally, the Enterprise Environmental Safety and Occupational 
Health Management Information System is being developed to manage the 
environmental liabilities, hazards, personnel exposure, and safety 
needs for airmen at all levels. The Enhanced Technical Information 
Management System (ETIMS) is being developed to provide immediate 
improved warfighter capability to manage, store, electronically 
distribute, and use both paper and digital technical orders. ETIMS will 
shorten distribution timeframes and improve readiness by providing 
weapon system maintainers with on-demand, current, accurate and 
complete instructions to support maintenance activities.
    The Air Force is participating in the BCL initiative with the 
expectations of bringing new capabilities to the warfighter earlier. 
The Air Force supports efforts that expedite the acquisition policy 
process for business information systems while reducing redundant 
processes, which is the directed goal of BCL. We currently have two 
Major Automated Information System that are test cases for the BCL 
process, DEAMS, and ECSS. We are in the early stages of the BCL process 
and it is too early to predict success at this time but we remain 
optimistic.
    Financial Management
    Air Force Financial Management made great strides in fiscal year 
2007 as we continued our transformation efforts. The new AFFSC became a 
reality in September 2007 as the facility opened at Ellsworth AFB, SD, 
and its first phase--a central processing center for pay and travel 
vouchers--went operational. We were honored that Senator John Thune, 
Congresswoman Stephanie Herseth Sandlin, a representative from Senator 
Tim Johnson's office, and Secretary of the Air Force Michael Wynne 
attended the ribbon-cutting and recognized the center's value as we 
centralize pay and travel processing from 93 locations around the globe 
to a world-class, best-practice shared services center. Over the coming 
months, we will continue to work toward the second phase of the AFFSC, 
which is a 24x7 contact center to handle pay and travel inquiries from 
over 300,000 military and civilian customers. All told, the AFFSC 
returned 598 manpower slots to the warfighter, valued at $210 million, 
and more importantly, improved the customer service levels received by 
our airmen.
    As we progress into the second quarter of fiscal year 2008, more 
than 200 airmen (military members, civil servants and contractors) at 
the AFFSC are now providing timely financial services for major 
commands that encompass 18 installations and 6 geographically separated 
units. 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 obtain the financial services they 
need in a manner that works best for them.
    Another successful effort is one of our Joint initiatives with 
Transportation Command, the DEAMS. DEAMS is part of the Air Force ERP 
solution to re-engineer financial processes and will include the full 
range of accounting functionality. In July 2007 DEAMS Increment 1, 
Spiral 1 was deployed at Scott AFB and provides functionality to 
approximately 400 end users. Spiral 1 workflow focuses on requisition 
processing that creates a requisition, conducts automatic funds check, 
receives validation by a budget reviewer, completes review and 
validation by the contracting office and completes certification by the 
funds certifying officer.
    Additionally, under the leadership of the Secretary of the Air 
Force, Michael Wynne, the Air Force has created a Financial Management 
Dashboard. This dashboard provides Senior Leadership and Financial 
Managers at all levels with financial data transparency to support 
decisions and provide timely status of key financial metrics such as: 
tracking budget spend plans vice actual execution of operation and 
maintenance funds, working capital funds, and military personnel funds. 
We have worked diligently to produce metrics that are valuable to the 
decisionmaking process and define the metrics so that they are 
understandable.
    The Analytical Capability Transformation initiative, which includes 
the financial management Center of Expertise (CoE) and the Acquisition 
Cost Capability (ACC), has resulted in the most profound changes Air 
Force cost analysis has seen in the past 20 years! The maturation of 
our CoE continued in fiscal year 2007 with five-fold increase in 
workload. It completed 57 different studies for 37 different 
installations and all major commands. The CoE provides key analytical 
support including cost estimating, economic and business case analysis, 
and specialized financial analysis to major commands, base, and 
installation decisionmakers. 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. While the 
CoE analyzed over $300 million in investment dollars in fiscal year 
2007, we anticipate even greater benefits as full operational 
capability is reached in fiscal year 2008.
    In addition, the ACC achieved several milestones in its mission to 
improve Air Force-wide cost analysis. Five Air Force Cost Analysis 
Agency operating locations were opened and staffed at our Product 
Centers and Major Commands to provide non-advocate cost assessments of 
major Air Force programs. These operating locations will work hand-in-
hand with program offices to ensure high quality estimates are prepared 
and maintained for budget and milestone decisions. In August 2007, we 
issued cost estimating guidance with the Under Secretary of the Air 
Force and the Service Acquisition Executive that improves the quality 
and frequency of cost estimates and the accuracy of budget requests. 
Finally, our team made progress improving the training and 
certification of cost analysts. Working closely with Defense 
Acquisition University and private estimating societies, we 
restructured the course curriculum and certification requirements for 
cost analysts. These changes will ensure future analysts are better 
prepared for his challenging technical discipline.
    The Air Force Financial Management Community has also been working 
on identifying ways to share knowledge easily to support deployed 
servicemen around the globe. To this end, we are heavily leveraging the 
capabilities provided through the Air Force Knowledge Now and the 
establishment of Communities of Practice, such as the Combat 
Comptroller Community of Practice. This workspace provides a tremendous 
amount of deployment related information at one site for deploying 
Financial Management Personnel through a web-based collaborative 
environment. Service men and women use shared information and 
administrative and communications tools to conduct business, manage 
projects, maintain awareness and solve group problems. With a 
membership of over 850 and monthly web page views averaging 8,000, this 
is a great source to supplement preparation efforts to deploy. 
Additionally, by providing deployed site information, including 
pictures, it helps the deploying airman to manage his expectations and 
relieve pre-deployment anxiety.
    To further support our deployed troops, we began the deployment of 
the EagleCash program at Air Force locations within the Operation 
Enduring Freedom and Operation Iraqi Freedom theaters of operation in 
2007. EagleCash is a Department of the Treasury stored value card that 
eliminates the need for cash in deployed locations and allows our 
military personnel to link the card to their personal banking account. 
As a result, troops can load funds to the card by using a self-service 
kiosk. This eliminates frequent visits to Finance offices, and allows 
our airmen to use these cards on an installation to obtain goods and 
services. In May 2007, the first Air Force deployment of EagleCash took 
place at Al Udeid Air Base, Qatar. We have since expanded this program 
to seven additional locations, including four within Iraq. As a result, 
approximately 10,000 of our deployed troops began using the card in 
lieu of cash. Most importantly, EagleCash enhances the warfighting 
troops' ability to focus on the mission versus spending time in line to 
obtain cash for their everyday needs.
    Of course, improved processes and systems mean little without the 
people. On this front, financial management remains committed to 
equipping its people with the skills to succeed via world-class 
training curriculum and modern delivery methods. In fiscal year 2007, 
we revamped over 80 percent of our schoolhouse training to ensure our 
officers and civilians were receiving the latest in analytical, 
decision support, contingency and leadership skills. In addition, we 
continued our march toward using leading-edge delivery technologies 
that increase the numbers receiving training while driving the delivery 
costs down. Such an example is the Financial Management Distributed 
Learning Center (FMDLC), a one-stop, electronic storefront to enable 
the world-wide delivery and sharing of training events to airmen. 
Having gone live in fiscal year 2007, FMDLC puts e-learning at airmen's 
fingertips . . . anytime . . . anywhere. As a result, training 
capabilities are opened to larger portions of the workforce, plus we 
can quickly distribute important information and expert studies across 
the financial management waterfront, and more agilely exploit 
expertise, wherever located, to robust financial management skills. 
This effort is part of the overarching Air Force Enterprise Learning 
Management initiative.
                            financial audits
    We wholeheartedly concur with the committee that the most effective 
way to address the Air Force's financial management issues is to 
continue 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 FIAR Plan, a key component of which is the Air Force 
Financial Improvement Plan (FIP), formerly known as the Air Force 
Information Reliability and Integration Plan. The Air Force FIP 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.
    As part of the June release of the DOD FIAR Plan, a revised DOD-
wide audit strategy was outlined. The revised audit strategy 
transitions the DOD approach from one that focuses solely on a line-
item to one that focuses on end-to-end business processes. The Air 
Force is currently in the process of modifying the areas of Military 
Equipment and Real Property Accountability in the Acquire to Retire 
end-to-end process, as well as developing a plan for the Civilian Pay--
Hire to Retire process. The Air Force's approach to these three areas 
is in development and will be presented in the March 2008 version of 
the FIAR plan. Regardless of the strategy the Air Force employs, the 
primary objective remains the same: implement sustainable improvements 
in order to deliver accurate, timely, reliable, and complete financial 
management information.
    The Air Force took the first step in validating that we are on our 
way to audit readiness with submission of the Fund Balance with 
Treasury assertion package and subsequent ongoing audit by an 
independent public accounting firm that is scheduled for completion in 
June 2008. Additionally, the DOD Inspector General will initiate audits 
of the financial statement line items of Appropriations Received and 
Non-expenditure Transfers; further confirming Air Force progress toward 
improved financial information.
                             human capital
    For our business transformation efforts, the Air Force realizes 
there is more than the systems and processes that require 
modernization. It is essential for us to ensure our personnel are 
educated and supported to operate our modernized systems.
    In addition to our Financial Management Service Delivery Model that 
provided us with the framework to create the AFFSC, the Air Force has 
created a Personnel Services Delivery initiative. Our Personnel 
Services Delivery initiative dramatically modernizes the processes, 
organizations, and technologies through which the Air Force supports 
our airmen and their commanders. The goal is to deliver higher-quality 
services with greater access, speed, accuracy, reliability and 
efficiency. Our key enablers are maximizing automation and self-
service, centralizing work in Total Force Service Centers and 
realigning the role of strategic advisors. In an effort to provide more 
effective support to the airmen and their commanders, the Manpower, 
Personnel, and Services community will be moving to a common platform 
for personnel service centers.
    These initiatives feed into our larger Air Force Enterprise 
operational services delivery and enhance the Air Force's ability to 
acquire, train, educate, deliver, employ, and empower airmen with the 
needed skills, knowledge, and experience to accomplish Air Force 
missions whether on station or in garrison. We will deliver the ``right 
person at the right place at the right time.''
                               conclusion
    As a result of our business efforts to date, we have been able to 
shut down 26 unnecessary legacy systems affecting numerous Air Force 
functional organizations. Furthermore, we are tracking seven additional 
systems scheduled for shutdown in fiscal year 2008. The continued 
combination of our careful focus on investments and new business 
practices will create better information for decisionmakers while 
eliminating or migrating additional stove-piped and redundant systems.
    Finally, Mr. Chairman, I want to close by thanking you and members 
of this committee, on behalf of the Secretary and Chief of Staff, for 
your continued support of our airmen and their families in so many 
areas, particularly by providing them what they need to fight the 
global war on terror and defend 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 
exclusive to 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 this committee for your 
support during this important period of business transformation. We are 
proud to stand by your side in support of our Nation at war.

    Senator Akaka. Thank you for your statement, Secretary 
Gibson.
    Over the years, Mr. Walker has repeatedly told us that the 
key to successful business transformation at the DOD is a 
strategic planning process that results in a comprehensive, 
integrated, and enterprise-wide plan, or set of plans, to help 
guide transformation. Section 2222 of title 10, which we 
enacted in the NDAA for Fiscal Year 2005, requires that this 
strategic plan take the form of a Business Enterprise 
Architecture (BEA) and transition plan. Mr. Walker's testimony 
today indicates that DOD has begun to implement a BEA and 
transition plan, but that--and I quote--``The latest version of 
a BEA continues to represent the thin layer of DOD-wide 
corporate architectural policies, capabilities, rules, and 
standards, and well-defined architecture are not yet--do not 
yet exist for the military departments.''
    Mr. Walker, in your view, have the military departments 
made significant progress over the last year? Are they close to 
having the kind of enterprise architecture that they need at 
this point?
    Mr. Walker. They haven't made nearly as much progress as 
the Department has, on an enterprise-wide basis. They need to 
accelerate their efforts with regard to component architecture.
    Let me clarify, Mr. Chairman, as to when I talk about a 
business transformation plan. Clearly, an enterprise 
architecture is a key part of that, but there's a lot of other 
things dealing with business transformation that go beyond 
systems. You deal with issues that deal with human capital, you 
deal with issues that deal with contracting, you have issues 
that deal with a whole range of issues, other than the 
traditional financial management and systems necessary to 
generate financial and other management information.
    Senator Akaka. Secretary Brinkley, having heard the 
statement Mr. Walker just made, do you agree or disagree with 
his assessment of this issue?
    Mr. Brinkley. I would agree with his assessment, but I want 
to qualify it slightly.
    The DOD--and, sir, in your reference you mentioned the 
first 4 years and the struggle that took place with business 
transformation. The absence of DOD having clearly defined and 
articulated what was going to be common and corporate and 
required Department-wide made it very, very difficult for a 
Service, then, looking up at the DOD, to say, ``What do I have 
to define?'' So, in many respects, the task of the Services had 
been negated by our inability as a department to define a 
common enterprise architecture for the DOD. We have done that 
over the past 3 years, and that's been very clearly 
articulated, which has enabled them to begin to respond and 
decide for themselves what is--I'll use my colleague to the 
left, here, as an example--What is the corporate Army? Then, 
what is not corporate in the Army? They've begun that work in 
what needs to be done in common, how do we integrate our 
processes between finance, logistics, and acquisition in the 
Army? So, this is going to be a multistage process for what is 
the largest industrial enterprise in the world, by a factor of 
three. That's why I think that they are lagging, but it is 
understandable that they would lag.
    Regarding the transition plan, we also believe the system 
side of it has been well-architected, at the Department level. 
Efforts are underway--as he pointed out, we have many high-risk 
areas that have remedy plans that are being put in place. Are 
they integrated at the Department level? Do we have a unified 
business management transformation plan that encompasses more 
than systems? We would agree that we have much work remaining 
on this. One of the areas Ms. McGrath, under the direction of 
Deputy Secretary England, is going to be pursuing is to tie 
those together so that there is a clearly articulated 
enterprise management transformation strategy worthy of the 
Department, given the importance of its mission.
    Senator Akaka. At our last hearing on this subject, GAO 
told us that the Air Force had fully satisfied only 14 of 31 
core framework elements of an enterprise architecture. The Navy 
had fully satisfied only 10 of these elements. The Army had 
fully satisfied only 10 of these--satisfied only a single core 
framework element, just 3 percent of the total.
    For the representatives of military departments, do your 
respective architecture programs have a committee with 
representation from across the Department that is responsible 
for approving the architecture, ensure that architecture 
products and management processes undergo independent 
verification and validation, and ensure that your architecture 
products address your current and future environments or 
include a sequencing plan to guide the transition between these 
two environments? Mr. Brinkley, how soon can we expect the 
military departments who have business enterprise architectures 
and transition plans in place that comply with the requirements 
of section 2222?
    Mr. Brinkley. I would defer to my colleagues, in terms of 
committing them on time. I will say that each of the military 
departments, in addition to the key business defense agencies--
Defense Finance and Accounting Service (DFAS) Defense Logistics 
Agency, the Military Health System--do submit, as part of our 
transition plan, a contribution--a section, specific to the 
Service, that lays out their intent to transition to compliance 
with the DOD's business enterprise architecture, as well as 
their own architectures and their own process improvement 
efforts.
    I also want to emphasize that, in many respects, the job 
of--again, I'll use my colleague, Mr. Kunkel, here, as an 
example, in the Army--of defining an enterprise architecture, 
and implementing it and executing it, in all honesty, is, in 
many ways, harder than it is to do at the enterprise level, 
because the Army has direct operational authority and 
operational responsibilities, whereas OSD, in the Department-
wide effort, tends to be a headquarters function, where what 
we're talking about is data standards and information and the 
ability to access and report and make decisions quickly.
    But, beyond that, I would defer to my colleagues to comment 
on any commitments to timelines.
    Senator Akaka. We will have another round of questions, so 
let me ask Senator Thune for his questions.
    Senator Thune. Thank you, Mr. Chairman.
    Mr. Brinkley--and I direct this to the Services, as well--
but, how does the DOD, in each of the Services, intend to 
implement the provisions of the NDAA for Fiscal Year 2008 with 
respect to designating the Deputy Secretary of Defense as the 
CMO, establish a Deputy CMO, and establishing a CMO within each 
of the military Services?
    Mr. Brinkley. The Director of Administration and 
Management, Honorable Michael Donley, and my office have been 
tasked by the Deputy Secretary of Defense to formulate a plan 
to address resource reporting, resourcing, as well as a 
timeline for implementation for implementing that critical 
legislation. We have launched that team. They are working now. 
The legislation, I believe, gave the Department 180 days to 
respond to Congress with a detailed plan for implementation, 
and we will have no problem meeting that deadline for you.
    Senator Thune. Anybody else care to comment on that?
    Mr. Kunkel. I would just offer that in the Army we look 
forward to contributing to that plan. We think it's good 
legislation.
    Senator Thune. How will the Department and each of the 
Services ensure that any actions it takes on that plan, if it's 
180-day plan, will maintain momentum after the change of 
administrations, next year? That's a concern, obviously. This 
committee has been pursuing this subject area for a long time 
now, and, I think, through a couple of presidential elections, 
at least, and there's always a concern, when there's a change 
of administrations, that some of these initiatives lose some of 
their momentum.
    Mr. Brinkley. I'll comment on a couple of thoughts. We 
share the concern. There's nothing we worry about more than to 
be somewhere else in 2009 and read about a restart of business 
modernization. It's, as has been indicated, not a Republican 
nor a Democratic issue, it is an American issue, and critical 
to our efforts to support our forces and be accountable to the 
taxpayer.
    I believe the steps we have taken, and are continuing to 
take, to identify career civil-servant leadership at the most 
senior level, and to have Secretary England, again, appoint Ms. 
McGrath, our appointment of David Fisher, the Director of the 
BTA--these are people who are not going away, who are familiar 
to your staffs and to this committee and other committees, 
which brings me to my last point. I believe that the role of 
Congress is instrumental here, in terms of holding a next 
administration accountable. The plans that we have published--
our Enterprise Transition Plan, many of these high-risk plans--
they have milestones that go out for months and years into the 
future. In a new administration, having them be accountable to 
taking that plan and continuing to execute to it and, of 
course, they will make changes, and they will adjust, and 
they'll recast certain things, but to not allow for Congress 
not to allow a complete restart, by holding accountable the 
Department's leadership, to maintaining momentum, I believe, 
could be a critical element of maintaining continuity. Those 
would be my thoughts.
    Senator Thune. Do you think, as Mr. Walker suggested, that 
your position should be a nonpolitical, completely-sanitized-
of-the-political-process, so to speak, professional person?
    Mr. Brinkley. I certainly believe, from a qualifications 
perspective, that, in terms of qualifications, a concern one 
has with any political appointee is the qualifications of the 
individual involved. So, I would argue that, as long as the 
individual is highly qualified, and we put a team around that 
person who are empowered the way I believe we've empowered some 
of our career leaders, again, who we've recruited from 
industry, and some who are the best of government--then this 
issue of this being a termed appointment may become less 
critical. I believe I've read that the average tenure of a 
political appointee in government is just over 18 months. So, 
how one creates enough tenure in a leadership position in 
government in the modern era, to me, is a challenge. Regardless 
of whether you give the person a term or not, how do you incent 
someone to stay? So, to me, building the structures around 
them, and, again, the kind of transparent, accountable plans, 
that you can hold the Department accountable to, regardless of 
transitions in leadership, I think, may prove to be more 
critical than even the issue of whether the position is termed 
or not.
    Senator Thune. Okay.
    Mr. Walker?
    Mr. Walker. Senator Thune, I would agree that there are two 
aspects. One aspect is statutory qualification requirements. I 
would note that they don't exist, and that's something that 
Congress may want to consider: having statutory qualification 
requirements for the Department-wide CMO and the military-
department CMOs and the deputy CMO, which would be consistent 
with making sure you have the right kind of people in there. 
The only position that we're talking about making a term 
appointment--and it may have to be modified, given what 
Congress has done--the only one we were talking about is the 
CMO for the Department, not all of these positions.
    Senator Thune. Right. No, I understand that.
    Mr. Walker. Right. As somebody who actually has a term 
appointment, I actually know that it does have an impact on 
whether or not you're willing to stay longer than the normal 
political appointee. As somebody who has good friends that have 
other term appointments, such as the Commissioner of Social 
Security, such as the Commissioner of IRS, such as the Director 
of the FBI, current and former friends, I know it has an impact 
on how long somebody's willing to stay. You can't require 
somebody to stay the full term, but I think you could do a lot 
better than 18 months.
    Senator Thune. Mr. Brinkley, do you believe that each of 
the Services could benefit from having a BTA-like office?
    Mr. Brinkley. The thing that I think has helped the 
Department in creating the BTA is that we had a real missing 
piece at the top of the Department, because OSD does not 
traditionally have an execution responsibility, yet it was 
taking on more and more execution-oriented activity as we tried 
to make more and more things common. You had a gap, you had a 
missing piece, I would call it, at the top of the pyramid of 
the Department's organization structure. So by creating the BTA 
and pulling--it's a partner organization to OSD, accountable 
for the DOD-wide activity. We filled a gap that existed. What 
is less clear to me--and, again, I would defer to my 
colleagues, and it may be even be a Service-specific answer--in 
the current Services structure--because, under title 10, they 
have execution responsibilities at all tiers of their 
organizations--it's not clear to me whether that gap exists, 
and, therefore, it needs to be filled. That very well may be a 
Service-specific answer, there may not be a uniform solution to 
that problem.
    Senator Thune. Anybody else care to comment on that? [No 
response.]
    No? Okay. Thank you, Mr. Chairman.
    Senator Akaka. Thank you.
    In July 2007, GAO reported that the Department of the Army 
would be investing approximately $5 billion over the next 
several years to develop and implement the General Fund 
Enterprise Business System (GFEBS), the Global Combat Support 
System-Army, and the Logistics Modernization Program. The GAO 
reported that this significant investment was being made 
without the benefit of business enterprise architecture, 
concept of operations, and effective portfolio management.
    Mr. Walker, what, in your view are the likely consequences 
of investing large amounts of money into business systems of 
this kind without adequate planning? Do you believe that these 
problems are limited to the Army, or are they likely to be 
common to other military departments?
    Mr. Walker. Mr. Chairman, the issue is, in the absence of 
having the things that you referred to, it served to 
significantly increase the risk of waste and delays and a lack 
of success. This is an issue that exists, not just within DOD, 
but in many other departments in government. As you undoubtedly 
know, there have been at least a couple of circumstances that I 
can think of, where, given the amounts involved, Congress has 
asked GAO to do periodic reporting. IRS business systems 
modernization being one example that I can give.
    I've been slipped a note here, saying that the duplication 
of functions and the lack of interoperability associated with 
legacy systems is the issue that exists across government.
    Senator Akaka. Secretary Brinkley, do you agree or disagree 
with Mr. Walker's assessment on this issue?
    Mr. Brinkley. The issue of interoperability? This is the 
one that we're talking about? The issue of--again, as the 
Services have been given--and I would use Logistics 
Modernization Program, which is one of those that was mentioned 
a moment ago, as an example of a program that has confronted 
and addressed these issues successfully, that has integrated 
the financial and the logistical elements of working-capital-
funded logistics, I think that's an actual model, which 
struggled very greatly, and GAO was extremely active in 
critiquing, early on. They are working through, today in the 
Army, between GFEBS and Global Combat Support System-Army. The 
remaining issues, in terms of interoperability--and, again, I 
think that goes to the heart of the architecture comment we 
made earlier, which is, they are moving in this direction as 
quickly as possible, given, now, the corporate-level 
requirements have been made clear.
    Pete, I don't know if you want to add to that or not.
    Mr. Kunkel. I'm delighted to address it.
    With respect to interoperability, the Army's leadership has 
placed a great deal of emphasis on business systems 
transformation. I'll say that the GFEBS is actually compliant 
with the most recent version of the Business Enterprise 
Architecture. It's compliant with the Standard Financial 
Information Standards. With respect to our Business Enterprise 
Architecture, which is still under development, we have paid 
the most emphasis to the touch points between the domains; that 
is, between the logistics and financial domain and the human 
resources domain. In fact, the human resources domain is a BTA-
built application that we look forward to using, late this 
year.
    With regard to systems redundancy, we have a rigorous 
portfolio management process, conducted by our CIO-G6, that, 
since it began its work, has eliminated 1,500 systems, from 
3,200 to 1,700 systems. GFEBS alone eliminates 90 systems, 
DIMHRS replaces 66 systems. We're working hard to address these 
problems. We take it very seriously.
    Senator Akaka. Let me ask the three Service representatives 
three questions. Do you have responsibility, within your 
department, for the development of a business enterprise 
architecture and transition plan? Also, do you have 
responsibility for making investment decisions for new business 
systems? Do you believe that you can make sound investment 
decisions in the absence of a robust enterprise architecture 
and transition plan?
    Mr. Brook. Mr. Chairman, I do not have that responsibility, 
nor do I make investment decisions, but I think the question 
that you pose is an excellent one, and that is whether or not, 
in the absence of a comprehensive business enterprise 
architecture, there is risk involved in investing in either 
legacy systems or new systems. There certainly is. That risk 
isn't eliminated by enterprise architecture, but it certainly 
is reduced.
    Although we don't have a business enterprise architecture 
specific to Navy, we function inside the business enterprise 
architecture that BTA and OSD have constructed. We mitigate 
that investment risk as best we can. So we mitigate that risk 
by subjecting investments in legacy systems or new systems to a 
review and precertification process that involves the 
Department's CIO, certification by BTA's investment review 
boards, and, eventually, approval by the Defense Business 
Systems Management Committee.
    So, within that structure, we think we're performing a 
responsible review of our investments inside the overall 
department's business enterprise architecture.
    Senator Akaka. Secretary Gibson?
    Mr. Gibson. Senator, in this case, with regard to 
governance, management, and oversight, we feel like we've 
worked hard and created a very good news story here. We have 
instituted a thorough, formal, and codified corporate and 
governance structure, including enterprise architecture, in the 
Air Force, which is supported by a dedicated and consistent 
senior leadership guidance. We have a tiered structure, which 
cascades down from the senior leadership level to the 
functional levels. It provides checks and balances for 
investments, as well as evaluating business investments for 
risk, value, strategic alignment, and integration across the 
Air Force.
    Our structure mirrors DOD's, in a great way, beginning with 
the functional domains, feeding up to a cross-functional 
working group, which is supported by the CIO. All of this is 
overseen by the Secretary. We do have IRBs at the local level.
    This effort is consistently evolving, and, coincidentally, 
in the spring of 2007, the Air Force CIO reorganized, merging 
several disparate review organizations under a single 
authority. We feel like the results of our management and 
governance efforts are an Air Force with an integrated, 
efficient, and effective governance and management of its IT 
systems, yielding fewer IT systems, lower costs, and ultimately 
providing better support to the Air Force and the Department.
    Senator Akaka. Before I call on Mr. Walker for your 
comment, let me call on Secretary Kunkel for your response.
    Mr. Kunkel. I'll just respond briefly, that we do, indeed, 
use the investment review board process. It's our measured 
judgment that the best way to see to it that we conform to DOD 
standards and governance is, indeed, to submit our business 
system modernization and development projects through the DOD 
Investment Review Board (IRB), as envisioned by the 
legislation. However, I would like to just mention that our 
business enterprise architecture is aligned to the DOD 
federated approach. We have a three-tiered readiness structure, 
where systems are aggregated into domains, and the domains have 
to create their own enterprise architecture and transition 
plan. That work is then overseen by the CIO-G6 in that 
portfolio management process I mentioned before, where--with 
the elimination of 1,500 systems. In turn, that process is 
overseen by the Deputy Under Secretary of the Army, who is a 
direct-report to the Executive Office of the Headquarters of 
the Army. This Deputy Under Secretary is the Army's 
representative on the Defense Business Systems Management 
Committee. We leverage that process across the Army, and serve 
it up to DOD. We're tightly coupled with DOD. As you've 
mentioned, we do have a lot of programs underway, and they are 
important ones.
    So, the answer is yes, we do use the IRB process, but we 
use DOD's also.
    Senator Akaka. Thank you.
    Mr. Walker, any further comment?
    Mr. Walker. Thank you, Mr. Chairman.
    Two things. One, I would agree with Mr. Brinkley that there 
were certain practical restrictions imposed on the military 
departments, unless and until the OSD defined the enterprise-
wide architecture. Second, to the extent that the military 
departments follow the enterprise architecture, that serves to 
reduce the related risk. Third, the report that you referred 
to, the GAO report on DOD business transformation, of July 
2007, we made five recommendations, and the Department 
concurred with all five. That's very unusual, to get a concur 
on five out of five, so I assume that they're moving to 
implement.
    Senator Akaka. Thank you very much.
    Senator Thune.
    Senator Thune. Thank you, Mr. Chairman.
    I'm going to direct this to Secretary Gibson. Previous work 
that's been done by GAO, the Air Force has been credited with 
having progressed more than the other military departments in 
building out its enterprise architecture. You've touched a 
little bit on this. But, I would first direct the question to 
Mr. Walker. Has the Air Force actually made more marked 
progress, or is that a matter of definitions?
    Mr. Walker. They've made more relative progress than the 
other military departments, yes.
    Senator Thune. If that progress has been made--and this is 
the question I would direct to Secretary Gibson--what do you 
attribute that to the success that the Air Force has 
experienced?
    Mr. Gibson. Senator, I would say that the progress comes 
from several things. One is, you have a very receptive audience 
that wants to improve. I think you have leadership that 
understands the issues and emphasizes those, monitors those, 
measures those, and holds people accountable to that. I think 
what we've done is, we have taken something and structured it 
in a tiered environment so that we have accountability at all 
levels, and that we have woven this into our management 
structure and the fabric of how we do business.
    Senator Thune. I want to come back to this issue of 
interoperability for a minute, because bureaucracies tend to 
resist change, and, the bigger the bureaucracy, the harder and 
the more I think they resist. The story in my State of South 
Dakota about the employee at the Department of Agriculture who 
was crying, and somebody asked him why, and he said, ``Because 
my farmer died.'' There is a tendency, I think, for 
bureaucracies to continue to get larger, and there are certain 
territorial issues that are involved as you implement systems 
and technology that will replace some of the existing ways of 
doing things. The reason I raise this question, because it's 
with regard to what the Air Force is doing at Ellsworth and 
whether or not--if there were interoperability between the 
Services, why could there not be one financial services center 
that serves all the Services? If a record can be pulled up--and 
the analogy I guess I would use, in terms of healthcare, is--
one of the things we've been trying to do is get electronic 
medical records, so that someone can go visit a hospital in 
Bakersfield, CA, who might live in Rapid City, SD, but they can 
access a medical record so that they know what the history of 
that particular patient has been. Why can't we know that the 
universe of people who serve in the military? We all have the 
same goal in mind. If there were interoperable systems between 
the Services, would it not make a lot of sense to begin to 
consolidate some of those services and eliminate what I would 
perceive to be a considerable amount of redundancy in a world 
that's gone largely paperless, at least in the private sector?
    Anybody care to react to that ranting?
    Mr. Walker. There's a lot of opportunity to improve 
economy, efficiency, and effectiveness by leveraging 
technology, by moving to a shared-services-oriented approach, 
and taking other steps that the private sector has done for 
many, many years. But, it is countercultural, and that is a 
major challenge.
    Senator Thune. Mr. Brinkley?
    Mr. Brinkley. The only thing I would add is, Director Zack 
Gaddy of the DFAS, sir, if he were here today, I think I'm 
echoing what he would say, and that is--and I'll draw a broader 
observation--under the most recent base reduction and closure 
effort, there is a consolidation of DFAS finance and accounting 
centers, and the effect that that's having is, it's stressing 
the system and accelerating the exact system consolidation 
we're talking about. One of the things that's a challenge in 
government--in a company, you have a quarterly profit that 
motivates change, and that's one of the things you use to help 
overcome barriers to--resistance to change. In government, we 
need these artificial inducements, sometimes. So, base 
reduction serves as an inducement to stress the system and 
force it to adapt quicker.
    I would argue that our joint warfight that we're engaged in 
has helped motivate a more rapid adoption of materiel data 
standards. The need for instant access to our personnel has 
helped motivate the agreement and the more rapid adoption of 
the DIMHRS.
    You mentioned healthcare; obviously, military health system 
and the stress it's been under has motivated these changes.
    So, I would say, in the financial arena, Base Realignment 
and Closure is serving to help do that, in some respects, and I 
think that's part of the vision Zack has for DFAS, is to 
harvest the value out of system consolidation to help 
streamline our financial accounting practices.
    Senator Thune. Bottom line is, providing the best service 
possible to the warfighter at the lowest cost to the taxpayer. 
I would suspect that there are times when a soldier or a member 
of the military needs to talk to somebody face-to-face and 
needs to have an access point where they can go and ask 
questions. But, a lot of these sorts of services are now 
handled, if there is a portal that can be offered through some 
sort of technology. It just seems like there's a tremendous 
amount of savings that could be achieved there, and a lessening 
of bureaucracy and redundancy. It requires a willingness on the 
part of the institutions to develop these--this 
interoperability that, culturally, I know, is hard to 
implement.
    What actions are the Services taking to reshape some of 
those cultural barriers to change?
    Mr. Kunkel. I can say, for the Army--you mentioned a 
servicemember--in the case of the Army, a soldier--looking for 
assistance on a financial topic. The Army will be the first 
Service to implement the DIMHRS integrated personnel and 
payroll system. That will be a quantum leap for the Army. It's 
a DOD-built system. All three Services are going to use DIMHRS.
    You mentioned having a person to answer questions that--
we're taking a look, right now, what, for the Army, that means. 
We have defense military pay offices that are on our camps, 
posts, and stations already, and--we're current--right now 
we're looking at how those can be leveraged for the post-DIMHRS 
environment.
    So, I guess I would say, DIMHRS is just that, it's not an 
organization, but it's a system that is going to be used by all 
the Services, starting with the Army.
    Senator Thune. This would be, for Mr. Walker and Mr. 
Brinkley--but the time and commitment and the effort that 
you've made to these types of improvements have not gone 
unnoticed, and, I think, as was noted Senator Akaka and I both, 
at the beginning, the committee thanks you for the progress 
that has been made. I guess the question I would have is, as we 
move into what will be a new administration next year, this is, 
of course, the second year of this congressional session, and, 
in an election year, arguably, we'll see what happens and gets 
done around here. But, what suggestions would you have for us, 
in terms of things that we might be able to focus on, or things 
that we should be doing? Any ideas about possible legislation 
that we might be pursuing to help accomplish the ends that I 
think we all want to reach and to serve, here?
    Mr. Walker. For any enterprise to be successful, you need 
to focus on planning, people, process, technology, and the 
environment, which includes incentive, transparency, and 
accountability mechanisms. For transition, the first four are 
particularly important--the plan and the people and the 
processes and controls.
    With regard to something I mentioned earlier, and that I 
think Mr. Brinkley also touched on, the CMO and Deputy CMO 
position at the Department-wide basis and the CMO positions at 
the military department level do not currently have statutory 
qualification requirements. I think that's something that you 
ought to consider. I think it's a separate and distinct matter 
as to whether or not you want to consider a term appointment 
for the CMO. I still believe, for a variety of reasons, that 
that makes sense, but I also acknowledge that, given where we 
are in this administration, and that that's not likely to 
happen during this Congress. But, I think the other ones, if 
they could happen--in other words, statutory qualification 
requirements for these key positions will increase the 
likelihood that we'll get the right kind of people in the next 
administration, no matter which administration that might be.
    Senator Thune. Thank you all again very much.
    Thank you, Mr. Chairman.
    Senator Akaka. Thank you, Senator Thune.
    In the area of management of business systems acquisition, 
GAO has reported that the formidable challenge facing the 
Department is ensuring that thousands of DOD business system 
programs and projects actually employ acquisition management 
rigor and discipline. GAO's work in reviewing business systems, 
such as DIMHRS, the Naval Tactical Command Support System, 
Transportation Coordinators Automated Information for Movement 
System II, shows that implementation of these institutional 
approaches on business system modernization programs and 
projects is uneven, at best.
    For the three Services' representatives, what steps are you 
taking to ensure that the institutional management capabilities 
and controls are reflected in how each and every business 
system investment is managed?
    Mr. Kunkel. I would just reiterate the three-tiered 
accountability process. Each of the Army's domains has its own 
enterprise architecture and transition plan, and then, above 
the domains is the portfolio management process, managed by the 
CIO-G6. They then report up to the Deputy Under Secretary of 
the Army, who sits on the Defense Business Systems Management 
Committee.
    We are working very hard to get our investments built 
quickly. We're also, of course, a great deal of emphasis on our 
warfighter business mission area. That process is how the Army 
vets its business systems investments and modernization 
programs.
    Mr. Brook. Senator, in the Navy, the investment decisions 
for both legacy systems and new systems are vetted through an 
investment review process that moves up through the Department 
of the Navy CIO, eventually to the IRBs and the Defense 
Business Systems Management Committee. It's also my 
understanding that the timelines and milestones, that you 
referred to, that apply to the acquisition programs, also apply 
to major systems acquisitions inside the Navy.
    Mr. Gibson. Senator, we have in our functional domains, we 
manage our systems, and that all reports up through the IRBs up 
to the senior working group, led by the CIO. We are constantly 
tracking the systems milestones, and review those, and provide 
the working group members reporting on that. This gives them 
insight into impacts that might affect delivery, capabilities, 
costs, and schedule delays. We're using a lot of the earned-
value management principles, as we look at this, to review 
those systems, so that we can stay on top of them and deal with 
them as quickly as possible.
    Senator Akaka. Secretary Brook, with respect to the Navy's 
ERP program, in particular, the life-cycle cost estimate went 
from $1.6 billion in 2004 to $2 billion in 2007, and its full 
operational capability schedule increased by 2 years, from 2011 
to 2013. My question to you is, what steps are you taking to 
mitigate further delays and cost increases?
    Mr. Brook. Senator, the implementation of ERP in the Navy 
is underway. Naval Air Systems Command went live on December 
21, and we are operating there now--effectively, in four of the 
five mission-critical areas. The fifth area is still not fully 
satisfactorily functioning for us. We will have to invest, I 
think, additional dollars, short-term, to make sure that we can 
overcome the short-term difficulties that we're having in one 
of our mission-critical areas.
    Over the long-term, however, we have plans to roll out the 
ERP to successive systems commands. I think that the lessons 
that we have been able to learn, from both the pilot projects 
that preceded the current ERP and from what we're learning at 
Naval Air Systems Command, will allow us to implement the 
successive rollout of ERP with better controls for both cost 
and the quality of the implementation. It's a tremendous 
challenge, however. No corporation in America has undertaken an 
ERP of the size and complexity that we're undertaking, so 
there's a great deal to be learned along the way.
    Senator Akaka. Three years ago, the Secretary of Defense 
established the BTA to ensure an organizational focus for 
business transformation efforts within the Department. The 
military departments do not have similar organizations. 
Instead, it appears that new business systems continue to be 
developed through stovepiped organizations which lack the 
breadth and authority needed to address the entire job.
    Mr. Walker, do you believe that the military departments 
would benefit from having a single organization, like the BTA, 
to serve as the focus for their business transformation 
efforts?
    Mr. Walker. Mr. Chairman, I basically agree with what Mr. 
Brinkley said, and that is, taking the BTA approach at the 
enterprise-wide level was essential, because the OSD really is 
not an operational entity, it's not used to having to be 
responsible for those types of activities, so, it was 
essential. On the other hand, the military departments do have 
to engage in those type of activities on an ongoing basis, and 
I think it's really up to them as to what they think the most 
efficient and effective approach is in order to achieve the 
desired outcomes.
    Senator Akaka. Thank you for that. Over the last several 
years, this subcommittee has spent a lot of time working to 
address concerns about the DOD acquisition workforce, but top 
officials at the DOD have told us that there are critical gaps 
in the Department's financial management workforce, as well.
    Mr. Walker and Secretary Brinkley, do you believe that the 
Department currently has the right number of financial 
management experts with the right skills to accomplish its 
business transformation mission?
    Mr. Walker?
    Mr. Walker. Mr. Chairman, GAO has not conducted a study 
that focuses solely on the issue of the adequacy of the number 
and the skills and knowledge base of DOD's financial management 
team, so I really wouldn't be in a position to give you an 
opinion on that, absent the work.
    Senator Akaka. Secretary Brinkley?
    Mr. Brinkley. I couldn't comment on whether we have the 
right number of financial management professionals. I would 
defer to my colleagues in the Comptroller's office for that 
answer. We could take that for the record for you.
    [The information referred to follows:]

    The Department of Defense (DOD) recognizes the need to have a 
qualified financial management workforce. Today, over 50 percent of the 
DOD Comptroller staff has at least one professional certification. The 
Department is introducing innovative strategies to maintain and develop 
gifted employees. For example, Defense Finance and Accounting Service's 
Leaders-in-Motion program prepares 280 Defense financial managers every 
year with technical and leadership training. Furthermore, the 
Department is working to achieve financial management outcomes by 
aligning National Security Personnel System Individual Development 
Plans to the Department's strategy. Finally, the Department is 
investing in the workforce by initiating the Chief Financial Officer 
Academy at the National Defense University which will provide 
certifications and training to DOD and civilian agency financial 
management workforce to ensure that they have the skills to resolve 
existing and future financial management challenges.

    Mr. Brinkley. Regarding the challenge, overall, with our 
workforce, I would certainly agree that we need to continually 
infuse the best and brightest talent into government. I would 
make the point that that is a very hard thing to do in this 
economy. I'll offer a point of view. What we've tried to focus 
on is speed to deliver. Young, talented systems people want to 
be able to move and work quickly to achieve an objective. Many 
of our programs in government take many years, and that doesn't 
motivate someone, a young engineer, a young systems analyst who 
can go and work in the private sector and, in a year or 2 
years, the examples abound of how quickly the technology cycle 
moves in the private sector. So, our ability to accelerate the 
ability for us to deliver and field technology doesn't just 
affect our ability to deliver capability to the warfighter, but 
it directly affects our ability to recruit the best and 
brightest talent into government, because the best and 
brightest talent wants to be able to work a high, rapid pace, 
to work with cutting-edge technology; and to try to recruit 
someone in to work on a system that's going to take 5 years to 
field does not motivate talent to come and join the government.
    So, I think the human-capital challenge is directly tied to 
many of our other challenges with acquisition, which is, how do 
we go faster? How we maintain, or get closer to, the private 
sector's ability to field technologies quickly? That would be 
my comment.
    Senator Akaka. Secretary Brinkley, I understand that the 
BTA has used the authority we gave you to hire highly qualified 
experts (HQEs), to bring in skilled professionals to assist in 
the business transformation effort. In your view, should the 
military departments be taking similar steps to help in this 
new expertise?
    Mr. Brinkley. Yes, that's been an absolutely critical 
element for the BTA. We've recruited dozens of people under 
that authority into the BTA, that had the HQE authority, which 
provides up to a 5-year term at senior-level paygrades for 
talent to come into government and make a contribution. I also 
know that my colleagues in the Services are beginning to use--
and have, in many cases, used that authority, and we're seeing 
it accelerate, in terms of its adoption. There were some work-
rule definition and responsibility-definition things that had 
to be worked through in the personnel management process, but 
those have been resolved, and I do believe--and I'd ask my 
colleagues to comment--but, I do believe we are seeing those 
type of resources begin to be infused into the Services.
    Senator Akaka. Yes. I'd like to have comments from the 
representatives on this, whether you agree, disagree, or your 
thoughts on it.
    Mr. Kunkel. Working for the Deputy Under Secretary of the 
Army is a staff of systems experts, architecture experts, and 
governance experts. With respect to the Financial Management 
workforce, the push is to automate. So, where we're staffing up 
is, when we're building these automated systems. These 
architects are working hard to see to it that the systems are 
integrated with each other, and that the touch points are 
correct. While we're building the systems, we're seeing to it 
that our processes conform to the best business practices, but 
also are informed by Army subject-matter experts. So, that's 
our investment in human capital as we build these automated 
systems, which will improve timely and accurate results.
    Senator Akaka. Secretary Brook?
    Mr. Brook. Mr. Chairman, we, also, are using HQEs. With 
regard to the workforce, it's an interesting issue. In addition 
to the technology side of it, which Mr. Kunkel mentioned, there 
is the question of professional growth and professional 
development. Of course, we need to talk about this in the 
context of both civilian financial management staff and 
military financial managers. The challenges in some places are 
the same, in some places are different. With the military 
members, there is the challenge to balance the development of 
their warfighting capabilities and their non-warfighting 
capabilities. We create a very crowded career path for our 
military members, and it makes it difficult, sometimes, for 
them to develop the building blocks in financial management 
that are needed for senior positions.
    In the civilian area, we have issues of career growth and 
model career paths young people coming into financial 
management can look at and see how they can progress through 
their careers. I have commissioned an informal study of this 
inside the Navy to see where the gaps are and where we need to 
apply some effort and resources.
    Overarching all of that is providing the adequate education 
and training, including graduate education, for both civilians 
and military members so that they have the appropriate skills 
to match the assignments that we put them in.
    Senator Akaka. Secretary Gibson?
    Mr. Gibson. Senator, the Air Force greatly appreciates the 
authority Congress has given us to hire outside assistance and 
continues to expand our use of the HQEs. As a status update, we 
have hired, to date, 12 HQEs, but not all of them have been in 
business systems modernization. Our communities report back 
that there are no real obstacles to hiring and using the HQEs, 
but we would characterize that we're in the early stages of 
deployment of this effort.
    Senator Akaka. I talked about high risk, and mentioned it 
in regard to Mr. Walker.
    Mr. Walker, I'm concerned that, despite legislation we have 
enacted in recent years, the Department still lacks the 
comprehensive human-capital plan to guide the development of 
its civilian workforce. In my view, this deficiency is so 
serious that GAO should consider adding it to your list of 
high-risk management concerns. What is your view on this issue?
    Mr. Walker. I share your concern with the absence of that 
plan, but I would also remind the chairman that we have the 
lack of adequate strategic human capital planning and 
management as a governmentwide high risk issue. When I end up 
speaking about DOD, I don't just talk about the ones that 
relate specifically to DOD. DOD also shares several--in fact, 
all--of the governmentwide, high-risk areas, of which human 
capital is one.
    Senator Akaka. I want to thank our witnesses today for your 
statements and your responses. It will be helpful to our 
committee, and we look forward to continuing to work with you 
to achieve expertise in these areas of business transformation 
and financial management of DOD.
    With that, the hearing is adjourned.
    [Questions for the record with answers supplied follow:]
             Questions Submitted by Senator Daniel K. Akaka
                    enterprise architecture program
    1. Senator Akaka. Secretary Kunkel, section 2222 of title 10, 
U.S.C., requires that the Secretary of Defense develop a comprehensive 
business enterprise architecture and transition plan to guide the 
development of its business systems and processes. The Department has 
chosen to implement this requirement through a ``federated'' approach, 
in which the Business Transformation Agency (BTA) has developed the top 
level architecture, while leaving it to the military departments to 
fill in most of the detail. The Government Accountability Office (GAO) 
has laid out a set or core framework elements that should be met by an 
enterprise architecture program. Three of the key elements are: (1) a 
committee with representation from across the Department that is 
responsible for approving the architecture; (2) a process for ensuring 
that architecture products and management processes undergo independent 
verification and validation; and (3) a process for ensuring that 
architecture products address the Department's current and future 
environments and include a sequencing plan to guide the transition 
between these two environments. Does the Army's enterprise architecture 
program meet the three requirements described above? If not, when can 
we expect the Army to meet these requirements?
    Mr. Kunkel. The Army's enterprise architecture program currently 
meets, or will soon meet, all three of these requirements.
    Requirement 1: A committee with representation from across the 
Department that is responsible for approving the architecture. The Army 
has made significant progress in implementing its accountability 
requirements to support business systems management and modernization 
efforts. The Deputy Under Secretary of the Army (DUSA) is the Army's 
representative to the Defense Business Systems Management Council 
(DBSMC). After the Investment Review Board (IRB) approval, the DUSA 
represents the Army's modernization requirements to the DBSMC for 
approval and authorization to incur obligations supporting 
modernization efforts. In November 2007, the DUSA established the 
Enterprise Resource Planning (ERP) Executive Steering Committee to 
guide the development of the Army's ERP Integration Strategy and the 
coordination of the preparation of two Army ERPs for a joint Milestone 
B decision.
    The duties of the ERP Executive Steering Committee have been 
subsumed by the now established Business Mission Area Executive Board 
(BMA EB), which is responsible for, among other things, guiding the 
development of and approving the design for the Army Business 
Enterprise Architecture (ABEA). The BMA EB is chaired by the DUSA. It 
includes the GO/SES Leads of the Army BMA Domains, established in 
conformance with the Department of Defense's (DOD) portfolio management 
structure. The five Domains and their Leads are: Acquisition, ASA(ALT); 
Financial Management, ASA(FM&C); Human Capital Management, ASA(M&RA); 
Logistics (G-4), Installations and Environment, (ACSIM), the Army's 
Chief Information Officer/G-6; and the Program Executive Office-
Enterprise Information Systems (PEO-EIS).
    The domain owners are responsible for developing transition plans, 
domain architectures, and ensuring all domain business systems are 
categorized and included in the Army-wide business systems portfolio. 
The domain owners comprise the next level of accountability.
    Each domain owner is accountable for ensuring that all business 
system investments comply with 10 U.S.C. Sec. 2222. Specifically, each 
domain owner must submit investment requests through the Business 
Mission Area to the Army's Chief Information Officer (CIO) for review 
and approval. The Army's CIO is the Pre-certification Authority (PCA) 
for systems modernization investments. In accordance with 10 U.S.C. 
Sec. 2222, each system over $1 million in modernization funding is 
certified for compliance with the DOD Business Enterprise Architecture 
(BEA) before being submitted by the PCA to the IRB.
    This approach has contributed significantly to improving business 
systems modernization efforts by ensuring investments are based on a 
thorough review of requirements. Accountability is assigned at each 
successive layer, and ensures appropriate approvals are obtained for 
modernization efforts.
    Requirement 2: A process for ensuring that architecture products 
and management processes undergo independent verification and 
validation. The Army's architecture products and management processes 
are aligned with like processes within the Department's BTA. A primary 
method of assessment for very large programs is provided by the 
Enterprise Risk Assessment Model (ERAM) process conducted by the BTA. 
The ERAM independently assesses enterprise risk in a variety of areas 
and reports findings and recommendations to the BTA and governing IRB. 
The Army, IRB, and BTA jointly develop mitigation strategies to address 
the risk identified.
    In addition, the Army has engaged an Independent Verification and 
Validation (IV&V) contractor to provide periodic reviews of the 
management processes and products of ERP systems to ensure integration 
among these programs. As the ABEA development matures, the Army will 
establish IV&V reviews to ensure alignment with Federal and DOD 
architecture requirements.
    Requirement 3: A process for ensuring that architecture products 
address the Department's current and future environments and include a 
sequencing plan to guide the transition between these two environments. 
The Army, in collaboration with the BTA, developed a federated approach 
for ensuring architecture products and system developments meet the 
Department's business transformation needs. The federated approach 
employs a standard architectural construct to align the Army's four 
major Enterprise Resourcing Planning (ERP) transformational programs. 
The four programs include the Defense Integrated Military Human 
Resource System (DIMHRS) supporting human resource management, the 
Global Combat Support System-Army (GCSS-A) supporting field/tactical 
requirements, the General Funds Enterprise Business System (GFEBS) 
providing the Army's financial management backbone, and the Logistics 
Modernization Program (LMP) supporting material and acquisition 
management. Financial capabilities will be implemented in each ERP 
guided by the GFEBS financial and cost management templates. Linkages 
between the four ERP programs will be accomplished through a single 
enterprise service bus. The solution will employ a business warehouse 
for data consolidation and analytical capabilities. The DUSA is 
responsible for enterprise governance to ensure architectural 
alignment. The federated construct provides a coherent, executable plan 
guiding the Army's enterprise transition efforts. Using this construct 
and the existing domain architectures, the Army, through its BMA EB, as 
chaired by the DUSA, and in collaboration with the BTA, will continue 
to extend the ABEA to address new challenges in the Business Mission 
Area as they arise.

    2. Senator Akaka. Secretary Brook, does the Navy's enterprise 
architecture program meet the three requirements described in question 
#1? If not, when can we expect the Navy to meet these requirements?
    Mr. Brook. The Department of the Navy is following a federated 
approach in implementing the Navy's Enterprise Architecture (EA), 
employing the DOD Global information Grid (GIG) Federation Strategy 
(signed out in August 2007) and the BMA (Business Mission Area) 
Federation Road Map (released October 25, 2007). The Navy followed a 
``look before you jump approach'' with federation, and waiting for 
definitive DOD guidance contributed to the Navy's receiving GAO review 
scores of ``Partial'' in several areas. Before creating Navy federation 
policy, guidance, and processes, the Navy, in conjunction with Office 
of the Secretary of Defense Networks and Information Integration, 
conducted a federation pilot to determine:

         How will the Navy EA be federated?
         Is there a repeatable process that can be used and 
        measured?
         How will the federation be governed?

    This pilot was recently completed, and we are expecting a formal 
report with recommendations and results within the next month.
    With respect to the three key elements:

          1. ``A committee with representation from across the 
        department that is responsible for approving the 
        architecture'': The Navy Information Executive Committee (IEC) 
        oversees enterprise architecture.
          2. ``A process for ensuring that architecture products and 
        management processes undergo independent verification and 
        validation'': This Navy process is currently in development 
        based on the principle of tiered accountability. It will be 
        published in fall 2008 and an initial implementation will occur 
        shortly thereafter.
          3. ``A process for ensuring that architecture products 
        address the Department's current and future environments and 
        include a sequencing plan to guide the transition between these 
        two environments'': The necessary processes are in place and 
        the governance to execute this policy is currently being 
        developed. It will align with the Department's EA programs and 
        initiatives. The policy will establish EA metrics for quality, 
        reporting mechanisms, and a governance structure to oversee EA 
        development, approval, maintenance, and change management. The 
        policy will be integrated with our portfolio management process 
        that will require information systems investments to conform to 
        Navy and DOD architectures.

    Additionally, the Functional Area Architectures (FAA) will describe 
the current, or ``as is'' environment, as well as our target, or ``to 
be'' state. The Navy IEC and Enterprise Architecture Coordination Board 
(EACB) will oversee FAA development to maintain alignment within the 
Department and with the DOD Enterprise Architecture. Functional Area 
transition plans, also under development, will supplement the FAA and 
aid in achieving the target state.
    The EA work that we have completed, taken together with the 
activities we have underway, will give the Navy a mature EA to guide 
and constrain our information technology investments and ensure that 
our business systems provide decision makers with timely, accurate, and 
reliable information.

    3. Senator Akaka. Secretary Gibson, does the Air Force's enterprise 
architecture program meet the three requirements described in question 
#1? If not, when can we expect the Air Force to meet these 
requirements?
    Mr. Gibson. The Air Force enterprise architecture program currently 
meets two of the three requirements described in your question 
(requirements 1 and 3). We expect to meet the third by the end of this 
fiscal year. This is based both on our own assessment and the 
preliminary results of the recent GAO assessment of the maturity of the 
Army, Navy, and Air Force enterprise architectures that will be 
published this coming May.
    We have a governance committee with representation from across the 
Department, called the Senior Working Group (SWG) that is acting under 
the authority of the Secretary of the Air Force, and in support of the 
Air Force CIO/PCA. The SWG is responsible for directing, overseeing, 
and approving the business segment of our enterprise architecture. We 
have a process for ensuring and have, in fact, published architecture 
products that address the Department's current and future business 
environments and a sequencing plan to guide the transition between 
these two environments. Our enterprise architecture products have 
undergone verification and validation, but not by an independent entity 
as recommended by the GAO, however, our plans are to meet the objective 
of independent verification and validation by the end of 2008. We have 
published policy and guidance to address the GAO recommendation and are 
in the process of implementing that guidance.

    [Whereupon, at 4:09 p.m., the subcommittee adjourned.]