[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



                         [H.A.S.C. No. 112-64]

                      ORGANIZATIONAL CHALLENGES IN

                       ACHIEVING SOUND FINANCIAL

                     MANAGEMENT AND AUDIT READINESS

                               __________

                                HEARING

                               BEFORE THE

                 PANEL ON DEFENSE FINANCIAL MANAGEMENT

                        AND AUDITABILITY REFORM

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                           SEPTEMBER 15, 2011







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                 PANEL ON DEFENSE FINANCIAL MANAGEMENT 
                        AND AUDITABILITY REFORM

                  K. MICHAEL CONAWAY, Texas, Chairman
SCOTT RIGELL, Virginia               ROBERT ANDREWS, New Jersey
STEVEN PALAZZO, Mississippi          JOE COURTNEY, Connecticut
TODD YOUNG, Indiana                  TIM RYAN, Ohio
                Paul Foderaro, Professional Staff Member
               William Johnson, Professional Staff Member
                    Lauren Hauhn, Research Assistant














                            C O N T E N T S

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                     CHRONOLOGICAL LIST OF HEARINGS
                                  2011

                                                                   Page

Hearing:

Thursday, September 15, 2011, Organizational Challenges in 
  Achieving Sound Financial Management and Audit Readiness.......     1

Appendix:

Thursday, September 15, 2011.....................................    19
                              ----------                              

                      THURSDAY, SEPTEMBER 15, 2011
 ORGANIZATIONAL CHALLENGES IN ACHIEVING SOUND FINANCIAL MANAGEMENT AND 
                            AUDIT READINESS
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Andrews, Hon. Robert, a Representative from New Jersey, Ranking 
  Member, Panel on Defense Financial Management and Auditability 
  Reform.........................................................     2
Conaway, Hon. K. Michael, a Representative from Texas, Chairman, 
  Panel on Defense Financial Management and Auditability Reform..     1

                               WITNESSES

Architzel, VADM David, USN, Commander, Naval Air Systems Command.     4
Fedder, Maj. Gen. Judith A., USAF, Director of Logistics, Deputy 
  Chief of Staff for Logistics, Installations and Mission 
  Support, U.S. Air Force........................................     5
Smith, Martha, Director, Defense Finance and Accounting Services 
  (DFAS) Cleveland...............................................     6
Stevenson, LTG Mitchell H., USA, Deputy Chief of Staff, 
  Logistics, G-4, U.S. Army......................................     3

                                APPENDIX

Prepared Statements:

    Architzel, VADM David........................................    33
    Conaway, Hon. K. Michael.....................................    23
    Fedder, Maj. Gen. Judith A...................................    39
    Smith, Martha................................................    47
    Stevenson, LTG Mitchell H....................................    25

Documents Submitted for the Record:

    [There were no Documents submitted.]

Witness Responses to Questions Asked During the Hearing:

    [There were no Questions submitted during the hearing.]

Questions Submitted by Members Post Hearing:

    Mr. Conaway..................................................    59
 
 ORGANIZATIONAL CHALLENGES IN ACHIEVING SOUND FINANCIAL MANAGEMENT AND 
                            AUDIT READINESS

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
    Panel on Defense Financial Management and Auditability 
                                                    Reform,
                      Washington, DC, Thursday, September 15, 2011.
    The committee met, pursuant to call, at 8:00 a.m. in Room 
2212, Rayburn House Office Building, Hon. K. Michael Conaway 
(chairman of the panel) presiding.

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE 
FROM TEXAS, CHAIRMAN, PANEL ON DEFENSE FINANCIAL MANAGEMENT AND 
                      AUDITABILITY REFORM

    Mr. Conaway. Good morning. Thanks everybody for being here 
at our hearing this morning for the defense management and 
auditability reform panel. I would like to welcome today the 
folks who are going to testify on the organizational challenges 
in achieving sound financial management and audit readiness.
    In our first couple of hearings, we received testimony 
about the DOD [Department of Defense] level and at the military 
department level on the challenges faced in attaining audit 
readiness by 2017. One of the primary challenges relates to 
DOD's large and complex organizational structure. DOD 
operations include a wide range of defense organizations, 
including military departments and their respective major 
commands and functional activities, large defense agencies and 
field activities.
    Today we will hear from representatives from a military 
systems command, logistics community and the defense agency 
providing finance and accounting services to DOD components. 
These organizations play a key role in DOD's ability to improve 
its financial management and achieve audit readiness.
    Although you normally would not associate the acquisition, 
sustainment, logistics communities with financial management, 
military commands and these functional communities generate and 
maintain financial activity that flows into DOD's financial 
statements. For example, logistics systems used to provide 
tactical units with information on maintenance and 
transportation of equipment are the same systems used to 
provide asset information for reporting and financial 
statements. Without proper controls within these functional 
communities, DOD will not be able to achieve auditability.
    The Defense Finance and Accounting Service provides 
financial accounting services to the DOD components. In fiscal 
year 2010, DFAS [Defense Finance and Accounting Service] 
processed 169 million pay transactions, paid 11.4 million 
commercial invoices and disbursed $578.0 billion. Since their 
activities are so integral to the financial activity reported 
in the DOD's component financial statements, challenges faced 
at DFAS must be addressed in order for DOD to progress towards 
auditability.
    During these times of resource constraints and budget cuts, 
it is imperative that the Department of Defense have reliable, 
useful and timely information for decision making. Therefore, 
it is critical that all DOD organizations within and outside of 
the financial management community work together to achieve 
effective fiscal management.
    I would like to thank our witnesses for taking the time out 
of their schedules to be with us this morning. First up this 
morning will be Lieutenant General Mitchell Stevenson from 
Deputy Chief of Staff, Logistics, G-4, United States Army; Vice 
Admiral David Architzel, Commander, Naval Air Systems Command; 
Major General Judith Fedder, Department of Logistics, Deputy 
Chief of Staff, Logistics, Installations and Mission Support, 
U.S. Air Force; and Ms. Martha Smith, Director of Defense 
Finance Accounting Services, Cleveland.
    I will now turn to my colleague to sub Joe Courtney for an 
opening statement, if he chooses.
    [The prepared statement of Mr. Conaway can be found in the 
Appendix on page 23.]
    Mr. Courtney. The Admiral appreciates that moniker. Thank 
you, Mr. Chairman. And again, just to save time for the record, 
Mr. Andrews prepared an opening--well, there it is. The man is 
here. I will yield to the gentleman from New Jersey, Mr. 
Andrews.

  STATEMENT OF HON. ROBERT ANDREWS, A REPRESENTATIVE FROM NEW 
 JERSEY, RANKING MEMBER, PANEL ON DEFENSE FINANCIAL MANAGEMENT 
                    AND AUDITABILITY REFORM

    Mr. Andrews. I thank my friend from Connecticut for his 
brilliant statement and apologize to the chairman for being 
late. We appreciate the witnesses being here this morning.
    I am looking forward to this morning's hearing because I 
think it takes us another level down--I don't mean that in a 
judgmental sense--another level of specificity in our mission. 
The chairman began the hearings at the DOD level. We talked 
about the department-wide effort to reach the auditability goal 
in time. We then went to the service level last week and heard 
about the plans of the services, and I think we have assembled 
before us this morning ladies and gentlemen who will execute 
the service plans because they are dealing with the actual 
stuff. You know, how much rolling stock we still have left in 
Iraq and Afghanistan, as the General and I spoke about the 
other day, that you can't have good auditable financial 
statements if you don't have a good control and data 
information system. And I think we are talking to some 
individuals this morning who do that very well.
    So, Chairman, thank you for this next step in our process. 
I look forward to the hearing. Thank you, Joe.
    Mr. Conaway. Rob, thank you. General Stevenson, you are up. 
Thank you.

 STATEMENT OF LTG MITCHELL H. STEVENSON, USA, DEPUTY CHIEF OF 
                STAFF, LOGISTICS, G-4, U.S. ARMY

    General Stevenson. Chairman Conaway, Ranking Member 
Andrews, rather than read my opening statement, I would ask 
that it just be admitted to the record.
    Mr. Conaway. Without objection.
    General Stevenson. And then I will quickly summarize just a 
couple of the key points within it.
    As the senior logistics staff officer in the Army, I can 
assure you that we logisticians fully understand the importance 
of auditability and, in fact, are working closely with our 
teammates in the financial management community to help the 
Army get there. Two key areas that we are working on are 
property accountability and modernizing our entire logistics 
automation enterprise from foxhole to factory.
    First in the area of property accountability. As you can 
imagine, maintaining detailed property accountability like we 
do in peacetime is difficult at best while fighting two wars. 
So last July our Army Chief of Staff launched a property 
accountability campaign to help focus the entire Army on 
ensuring that we operate within a culture of stewardship and 
supply discipline. I would be happy to elaborate on the details 
of that during the Q&A.
    As I am sure you appreciate, accountability requires senior 
leader participation at every level. So we use the Army's 
inspection and audit agencies to ensure compliance. We have 
assigned senior chief warrant officers to logistics staffs to 
provide oversight to both commanders and unit supply personnel, 
and we have caused there to be a significant increase in 
command supply discipline inspections Army-wide. We are getting 
after it.
    Second, in the area of logistics automation, we are in the 
process of implementing the Global Combat Support System-Army 
based on a proven commercial product, in fact the business 
market's leading software in integrated maintenance, supply and 
financial accounting. Logistics transactions such as the 
acquisition of capital property, the performance of 
maintenance, the receipt, storage and issue of supplies will be 
linked to their financial consequences at the transaction 
level. This will be a first for the Army, and it will be key to 
establishing auditable business processes. We have the system 
fully deployed in the 11th Armored Cavalry Regiment in Fort 
Irwin in California. Next month we will test it at Fort Bliss 
in Texas. And starting next summer, we will begin fielding 
Army-wide active, National Guard and Reserve, a total of 
160,000 users.
    GCSS-Army [Global Combat Support System-Army] will help 
make auditability a reality for the Army and we project it will 
save us a considerable amount of money in the outyears. Related 
to GCSS-Army, we also now have fully fielded something called 
the Logistics Modernization Program, which is the logistics 
system we use at the national level in our depots and arsenals 
and ammunition plants. It is based on the same leading 
commercial software as GCSS-Army, enabling an easy exchange of 
information between the two systems without costly interfaces. 
It is now fully deployed throughout the Army Materiel Command 
to 25,000 users and is helping us more accurately capture data 
associated with the $24 billion inventory and two million in 
daily transactions that are performed at that level of the 
Army. LMP [Logistics Modernization Program] will enable the 
entire business area at the national level to also be 
auditable.
    Together, these systems, along with the General Fund 
Enterprise Business System and a continued commitment to 
improving property accountability will enable the Army to 
better trace logistics operations costs and provide 
transparency. We will have more confidence in our data and will 
be able to make more informed decisions, thereby reducing waste 
and saving the taxpayer money.
    We are pretty excited about it, and I look forward to your 
questions.
    [The prepared statement of General Stevenson can be found 
in the Appendix on page 25.]
    Mr. Conaway. Thanks. David.

 STATEMENT OF VADM DAVID ARCHITZEL, USN, COMMANDER, NAVAL AIR 
                        SYSTEMS COMMAND

    Admiral Architzel. Congressman Conaway, Congressman 
Andrews, members of the panel, good morning. Thank you for the 
opportunity to discuss the Naval Air Systems Command's efforts 
in achieving and sustaining audit readiness. Mr. Chairman, I 
appreciate turning this ship into the wind right on time and 
going to the launch at 0800. That is impressive, sir. I 
appreciate that.
    As a Commander of Naval Air Command of about 37,000 people 
all told and about $45 billion per year in TOA [Total 
Obligation Authority] and approaching about 289 over the FYDP 
[Future Years Defense Program], I am personally committed to 
the Navy's financial improvement initiatives. Achieving and 
sustaining audit readiness by standardizing financial processes 
to provide accurate and auditable information that supports 
program execution decisions is one of my top priorities. 
NAVAIR's [Naval Air Systems Command] financial improvement 
program and business process standardization efforts are being 
led by accounting and financial management experts with the 
strong support from functional experts across my command in 
multiple business process areas, to include acquisition, 
contracts, logistics, human resources, corporate ops.
    To support the Department of Defense efforts at achieving 
auditable financial statements, NAVAIR is performing an 
assessment of the E-2D Advanced Hawkeye Program. The goal of 
NAVAIR's E-2D MDAP [Major Defense Acquisition Program] project 
is to demonstrate financial stewardship of funds allotted for a 
major acquisition program and assess the audit readiness of the 
Navy Enterprise Resource Planning, or ERP, environment related 
to business processes. We are on track for completion of our 
assessment at the end of September this month.
    The NAVAIR team is taking lessons learned from the E-2D 
MDAP effort and developing an audit readiness strategy to 
deploy across the command over some 110 other MDAP programs. 
This strategy will stress the importance of internal controls, 
compliance with regulations, maintaining an audit trail and 
other concepts that will contribute to NAVAIR's ability to 
achieve and sustain audit readiness. NAVAIR is leveraging Navy 
ERP to strengthen internal controls, enhance standardization, 
and improve the quality of information available to our 
decisionmakers.
    Having implemented an ERP pilot, which was entitled Sigma 
back in 2002, NAVAIR is a second generation ERP user and has 
significant experience with Navy ERP and relies on the system 
for all of our business operations, including project planning, 
funds execution, funds validation and support of procurement 
and contracting, training and awards processing, time and 
attendance, accounting and external financial reporting. The 
implementation of Navy ERP has provided increased fidelity of 
our financial data, providing our program managers timely 
insight into program execution and the ability to track dollars 
committed, obligated and expended and give program managers and 
field teams increased visibility in the interdependencies of 
program costs, schedules, resources and risks.
    NAVAIR supports the Navy, DOD and congressional direction 
to improve the quality of financial information and business 
processes necessary to achieve clean financial audits by 2017. 
I am and, more importantly, my entire command is committed to 
achieving these initiatives and believe that the resources 
invested will produce a significant return on investment to the 
warfighter and the American taxpayer.
    I look forward to your questions, sir.
    [The prepared statement of Admiral Architzel can be found 
in the Appendix on page 33.]
    Mr. Conaway. Thanks, David. Judy.

  STATEMENT OF MAJ. GEN. JUDITH A. FEDDER, USAF, DIRECTOR OF 
 LOGISTICS, DEPUTY CHIEF OF STAFF FOR LOGISTICS, INSTALLATIONS 
              AND MISSION SUPPORT, U.S. AIR FORCE

    General Fedder. Mr. Chairman, Mr. Andrews, distinguished 
members of the panel, thank you for the opportunity to appear 
before you today to discuss several issues that are important 
to your United States Air Force sound financial management, 
audit readiness and responsible stewardship of taxpayer 
dollars.
    The Air Force logistics community is fully engaged in 
supporting and achieving financial improvement and audit 
readiness compliance by 2017. Our plan to meet that timeline 
involves evaluation, discovery and mediation of the many facets 
that affect audit readiness. We are making progress on that 
plan by ensuring established inventory controls and equipment 
accountability processes produce the maximum combat capability 
from each taxpayer dollar and equip our warfighters with the 
critical assets required to support operational demands. We are 
also implementing corrective actions where necessary to ensure 
assets are recorded in the appropriate accountable system of 
record, valued at the correct amount and that assertions for 
existence and completeness are timely and accurate.
    The value of audit readiness is more than financial. It is 
fundamental to what we do every day across the Air Force 
logistics enterprise that enables us to responsibly procure, 
store and issue inventory and equipment that contributes to our 
mission. We are reinforcing that message with operational units 
at every level to ensure that all airmen are doing what it 
takes to achieve a clean audit.
    Mr. Chairman, Mr. Andrews and distinguished members of the 
panel, it is an honor to be here today. Thank you for your 
interest and engagement on this important effort as we work 
towards audit readiness in 2017, and thank you for your 
continued strong support of our airmen and their families.
    I submitted a written statement for the record, and I look 
forward to the question-and-answer period.
    [The prepared statement of General Fedder can be found in 
the Appendix on page 39.]
    Mr. Conaway. Thanks, Judy. Martha.

   STATEMENT OF MARTHA SMITH, DIRECTOR, DEFENSE FINANCE AND 
              ACCOUNTING SERVICES (DFAS) CLEVELAND

    Ms. Smith. Chairman Conaway, distinguished panel members, I 
am pleased to be here to discuss the financial services DFAS 
provides the Department of Defense and the complexity involved 
in providing those services. I will discuss our efforts to get 
DFAS as a service provider to the DOD to an audit-ready state 
by fiscal year 2017, as well as discuss how we are helping our 
customers meet their assertion goals. I am providing detailed 
information on this issue in a statement for the record.
    DFAS provides centralized payroll and commercial payment 
and financial reporting services for the military and its 
civilians. We also provide the summary level financial reports 
Congress uses to monitor the financial health of the military 
services. To illustrate the complexity of our work, all 
financial reporting begins with a single transaction. It can be 
as simple as a DOD civilian inputting their time and attendance 
or as complicated as defense officials drafting a multi-million 
dollar contract for a major weapons system.
    Each of our 169 million pay transactions for fiscal year 
2010 had an associated line of accounting. Consolidated into 
1,129 active DOD appropriations, each transaction must be 
reflected in over 255 million general ledger accounts.
    Just as an example of the complexity, the current Black 
Hawk Helicopter Program consists of three contracts. Funding is 
distributed among several services and foreign military sales. 
Since the original contract award, there have been almost 1,700 
contract modifications and we have made approximately 22,000 
payments for nearly $7.8 billion. Since fiscal year 2009 alone, 
DFAS has received approximately 211 monthly invoices for 
disbursements averaging $188.0 million per month.
    Nearly all DOD transactions make their way to one of our 
many systems, some owned by the services but used by the DFAS 
employees. Employees create or monitor the transactions, 
validate authenticity and accuracy, consolidate the 
transactions into reports and validate the accuracy of those 
reports. We project DFAS will disburse approximately $668.0 
billion in fiscal year 2011. Additionally, each month we 
reconcile approximately $100.0 billion worth of transactions, 
$85.0 billion in disbursements and $15.0 billion in 
collections.
    Our legacy systems are originally designed to provide local 
level management reports and summary level information used to 
prepare financial statements. Over the years, much of the 
transaction processing a statement preparation shifted from the 
services to DFAS. It is a challenging effort. And added to the 
mix are the new ERPs, Enterprise Resource Planning systems, 
used by the local level commands, produce financial information 
for the programs. The ERPs provide a level of discipline and 
standardization that is extremely beneficial to DOD's audit 
efforts and internal controls. However, a massive amount of 
data is still fed into the ERPs from the legacy environment 
since the ERPs do not process all types of transactions such as 
military pay and civilian pay.
    Visibility and traceability of transactions is integral to 
any audit. So we are working hard to ensure our processes are 
audit ready. DFAS efforts to standardize and strengthen 
internal controls began 20 years ago. Since 1991, we have 
reduced our footprint from 300 to just 10 sites and 
standardized our day-to-day activities in improving and 
eliminating systems. By consolidating field level accounting 
and finance functions into our financial reporting entities, we 
have a better opportunity to standardize processes and data and 
to fix problems at the source.
    DFAS's most valuable asset is our people, and we have made 
investments to strengthen our workforce. Today, 85 percent of 
our accountants have degrees. Since 2007, we have seen an 88 
percent increase in the number of certified public accountants 
and certified management accountants and a 322 percent increase 
in project management professionals and their certifications.
    To support customers' audit efforts, we have mapped 
processes, implemented control points, tested internal controls 
and mitigated risk for many key processes. We use the 
overarching principles from the DOD Financial Improvement and 
Audit Readiness Plan to ensure audit readiness is focused on 
day-to-day activities, that a proactive approach is used for 
correcting deficiencies and our improvement initiatives are 
sustainable.
    Our goal is to be prepared when the customers assert on 
specific parts of the financial statements. We also must be 
prepared for examinations of the services we provide customers 
that contribute to their assertion schedules. We have 
established audit readiness teams to provide realtime support 
during pre-assertion preparation during the audit and post 
audit.
    We have partnered successfully with the Marine Corps and 
identified improvement initiatives which we can replicate for 
the other services, And we are establishing a senior steering 
committee to proactively implement lessons learned from all 
audit findings. DFAS is walking in concert with our customers, 
expediting improvement initiatives, addressing systems 
challenges, and moving toward audit readiness and the goals 
established by DOD and Congress.
    The support of our senior most leaders, involvement of 
every employee in the process, and the continued collaboration 
with our customers are all key to our success.
    Chairman Conaway and distinguished members, thank you for 
your time today, and I look forward to your questions.
    [The prepared statement of Ms. Smith can be found in the 
Appendix on page 47.]
    Mr. Conaway. Well, I thank the witnesses. This may be a 
record, four witnesses doing their statements in less than 20 
minutes. Thank you very much. We will endeavor to stay on the 
5-minute clock as well. And with just four of us, we may get to 
go more than just one round. I appreciate everybody being here, 
and thank you very much for having it.
    The top layer of folks have talked about putting in place 
performance evaluation measures for people who are responsible 
for making this happen and then holding them accountable to 
those standards. Can you give us a quick couple of sentences 
about each of your four organizations and how you are making 
sure that--the wonderful things you said, Martha, are spot on, 
but unless you track it, unless you hold folks accountable, it 
is not going to happen. So could you talk to us about how the 
uniform as well as the civilian personnel, how you make sure 
they have got the right incentives in place and that we measure 
those--progress?
    General Stevenson. Sir, I think you sort of alluded to it. 
The Secretary of the Army has directed that starting in fiscal 
year 2012 and forward, all senior leaders involved in both 
logistics, finance and those things necessary to get us 
auditable will have a requirement to have in their appraisals 
the measures of their performance in toward meeting that goal. 
They will be rated on how well they supported the goals. I 
think that will be enormously motivating.
    Mr. Conaway. Okay. David.
    Admiral Architzel. Mr. Chairman. It is very similar on the 
Navy side. Today if I was to look at my senior executives who 
has a performance evaluation that goes into maintaining audit 
readiness or these kind of things, today I would say it is 
probably my comptroller. But starting in fiscal year 2012, 
anyone that is involved in generating a financial transaction 
is going to have accountability within their senior executive 
performance appraisals. That will get down to deputy PO [petty 
officer] levels who are clearly responsible for generating 
transactions or into the many people that go within that as 
well.
    On the admiral, sort of the flag side of the house, I would 
tell you that our Vice Chief has been very clear with the 
series of--directing memos about we will take this serious 
across our flag community to make sure that it is also brought 
home on the military side. So it is reflected in our 
evaluations and fitness reports as we go forward there as well, 
sir.
    General Fedder. Mr. Chairman, the Under Secretary of the 
Air Force and the Vice Chief of the Air Force sent a note out 
to all of the major command commanders, those operational 
commands, the four-stars that really have the airmen that are 
touching the systems and directed that both from a functional 
side that the performance plans of our senior civilians include 
specific performance measures associated with financial 
improvement audit readiness. And those measures--their 
performance will be measured in that regard.
    On the command side where we have airmen that are out there 
that are effecting the inventory precision and doing things 
that are also going to contribute to audit readiness, they have 
also emphasized to major commanders--major command commanders 
that it is important for commanders at all levels to understand 
the importance of achieving these. And the measures overall 
that we expect to see to the effectiveness of this very heavy 
senior leadership involved in this will be the continued 
success that we have when we assert existence and completeness, 
for instance, as we continue down with our FIAR [Financial 
Improvement and Audit Readiness] execution plan.
    Ms. Smith. Most all of the components associated with 
becoming audit ready are an integral part of our overarching 
strategic plan, and we have pushed our plan down into our 
performance appraisals for all of our employees, all the way 
down to the lowest levels, trying to inculcate that culture of 
audit readiness into what we do on a day-to-day basis.
    Mr. Conaway. Rob and I will look forward this time next 
year to visiting with a variety of folks just to see how well 
that has worked and if deadlines were missed and those kinds of 
things if we are able to make that happen.
    Rob, 5 minutes.
    Mr. Andrews. Thank you, Mr. Chairman. Thank you to each of 
the witnesses for a very thorough and good job.
    Ms. Smith, I really concur with your comment about 
personnel being the key to making these audits available. When, 
God willing, the economy turns back up and accountants can go 
into the private sector, what kind of inducements do we have to 
retain the talent that we have at your agency in the public 
sector? What are the incentives and advantages to do that?
    Ms. Smith. Well, I think the security that we provide the 
employees has been extraordinarily beneficial and we have seen 
a lot of employees recently coming in from outside industry 
looking to the government for a good secure type of job. The 
incentives that we use, we have a very comprehensive award 
program that we have across DFAS in terms of even down at the 
lowest level on passing awards between employees. But we strive 
to again keep the audit readiness at the top of our strategic 
goals. And so therefore, we are looking for all types of 
innovation and incentives to ensure that we----
    Mr. Andrews. You certainly made impressive gains in the 
preparation and quality of the workforce. We certainly want to 
protect that investment.
    General Fedder, I am impressed by the degree of intensity 
the Air Force has given to corrective action. It looks like at 
the highest levels, there is weekly, as I understand it, 
reviews of what is going on. Can you tell us an example of a 
couple of corrective actions that you have had to follow up on 
and what you have done to follow up on them?
    General Fedder. Yes, sir. Mr. Andrews, when we proceeded to 
assert spare engines, for instance, as one of our operating 
materials and supplies, we did identify that there were some 
gaps in our policies associated with inventories and how we 
report the spare engines through this process. And so we went 
back and had to identify a clarification and changed a policy 
in the reporting process of those spare engines.
    Mr. Andrews. Does that mean it was possible that we 
reported more spare engines than we really had or we missed 
them? What does it mean at the practical level?
    General Fedder. In this case, we identified that about 30 
percent of the units were not properly reporting the inventory 
of spare engines and there wasn't the catch in the system that 
we would have expected to identify that there was----
    Mr. Andrews. This is a perfect example of why we have this 
panel. And I commend the chairman and ranking member for 
creating it. It is possible that if you didn't fix that 
problem, it is possible that we would have made a financial 
decision to purchase more engines or more parts when we 
actually had them. So you buy something you don't need. The 
opposite is true, by the way, that we might erroneously believe 
we have spares and we don't and not have the readiness that we 
should. So keep up the good work.
    Admiral, I know that there was an ERP pilot in the Navy in 
2002. I wonder what the most important lessons learned were 
from that pilot and how you have applied them to this broader 
effort that you are engaged in now.
    Admiral Architzel. Thank you for the question, sir. In 
2002, one of the pilots--there were several pilots in the Navy. 
NAVAIR had one of them and it was called Sigma. It was a first 
generation ERP system. In that ERP system, it allowed us to get 
financial visibility across all of our programs. So you had the 
ability to take our data input from PBUSE [Property Book Unit 
Supply Enhanced] or our budget inputs and it would come down to 
line item disbursement through appropriations and right down 
into accounts. So program managers had the visibility without 
having to manually enter that data and continue then to verify 
and do a lot of manual rework. And that creates errors. Any 
time you have variation in process, that is not a good thing.
    Mr. Andrews. So you are able to reduce those errors by----
    Admiral Architzel. Absolutely. Yes, sir. And over the time, 
approximately 260 man-years in terms of what I would say would 
be in our experience with ERP, we eliminated in Sigma, which 
was the first generation ERP, about 55 legacy programs. And 
since we have incorporated to Navy ERP, it has been about four.
    Mr. Andrews. What was the reference to 260 man-years?
    Admiral Architzel. Man-years. Reduction in man work to do 
the kinds of things I am talking about, about tracking dollars, 
about validating and verifying----
    Mr. Andrews. In other words, one person working for 260 
years would have had to do these tasks and now you have 
eliminated that?
    Admiral Architzel. Yes, sir.
    Mr. Andrews. We should try that around here, Mike.
    I am going to ask for a second round if we have a chance 
because I did have a question for General Stevenson, but I am 
going to yield back at this point. If we could do a second 
round, I would appreciate that. Thank you.
    Mr. Conaway. Steve, 5 minutes.
    Mr. Palazzo. Good morning. Thank you all for being here to 
continue our conversation on such a very important issue. I 
think from a lack of attention in the past there is a reason 
why we are here again today and be here probably next year. But 
really, I am excited about the improvement that we have made in 
addressing these issues. Last week I was kind of more focused 
on, you know, the sharing of information between the DOD 
services and the agencies.
    And, Ms. Smith, you mentioned taking the lessons learned, 
having an after-action review and then sharing them with our 
partners across the DOD industries and other logistics in air 
and DFAS. Can you all just share--I am kind of wanting to know, 
one, is what has been some of the major obstacles or hurdles to 
achieving audit readiness, as well as, you know, maybe just 
some success stories? I think you all mentioned some of them, 
it has been answered. And also just your lessons learned. And 
how are you going about sharing your information with the other 
branches and other services.
    Ms. Smith. I can start. We learned a great deal from our 
efforts that we have done with the Marine Corps audit. One of 
the areas that we were focusing on is how do you reconcile all 
of this data. We receive data from the legacy systems. We will 
be receiving data from the ERPs, et cetera. So how do you give 
the visibility of that data to the auditors? Through the Marine 
Corps audit, we realized we had to give visibility of that data 
all the way from the beginning of the transaction all the way 
through to the financial reports. So we have created 
reconciliations across the board for all of the services and we 
are working on systems that will help us do that and be able to 
show the auditors that this transaction can flow all the way 
from the financial statements back to the source. And we can 
retrieve that source documentation for them. Those are some of 
the big ones.
    But we have a steering committee that we are setting up 
that goes across the board on lessons learned so we can as a 
DFAS entity, we can help all the services with that.
    General Fedder. Sir, as we have progressed with our plan to 
achieve audit readiness, some of the things that we have seen 
as a success story is the value of data cleanup within our 
systems. And frankly, we learned this from some of our fellow 
service efforts that are a little bit farther along in the Air 
Force in some cases. But we have seen that in order to be able 
to use legacy systems, for instance, those systems that we have 
now that are not under an ERP, the value and necessity of 
making sure that the information that we put into our logistics 
systems for things like inventory management and accountability 
have got to be very exacting and that before we can really 
achieve a clean audit in a lot of those systems we need to go 
back and ensure the accuracy of that data. That is one of the 
things that we continue to work on as we adapt our legacy 
systems and we mediate those systems to make sure that we can 
achieve the audit. Some of the obstacles that we have 
identified so far are specifically within those systems.
    As has been mentioned by one of my panel peers, the use of 
the systems that are not under an ERP tend to be very personnel 
intensive because of the fact that our systems don't talk to 
each other. We have inventory accountability systems that are 
not necessarily linked all the way in an end-to-end business 
process. And that requires a lot more manual labor to make sure 
that we can provide that exactness associated with an audit.
    Admiral Architzel. Congressman Palazzo, thank you for the 
question. As you look at the value of what we have for this 
effort in terms of what it is, I would say one thing for me as 
a commander, it is a team sport. And I think we have to--I have 
been trying--I am driving that home throughout the command 
because we won't succeed if it is just a comptroller viewed 
activity. And it is not. So if you look at every process that 
we have that generates a financial transaction, there are 
people that are in contracts, that are in engineering, that are 
in testing that contribute to that efficacy of that process.
    So what we are doing is taking every one of these areas 
where we generate a financial transaction and end-to-end 
processing, look at the business processes that go with it, 
look at the controls that are in place to control that process, 
find out where we are not in control and then do something 
about it.
    There are examples of that I would give in civilian pay 
where we had things--we were recording our civilian pay and we 
knew what was going on, but we actually found what we didn't 
have was the actual ability to ensure that how do we reconcile 
that within, say, if there is not accounted for civilian pay. 
It was done differently in different areas of my organization, 
different competencies. We have standardized that now. And by 
doing that, we have a standardized business process which is 
key to it. So our financial improvement process is important. 
It feeds into the overall ability to say we are ready 
financial, audit readiness. But above everything else, command 
involvement and command participation throughout the process.
    Mr. Palazzo. Thank you.
    Mr. Conaway. Joe, 5 minutes.
    Mr. Courtney. Thanks, Mike. General, your testimony was 
really impressive in terms of actually, you know, just coming 
out and saying that you anticipate $8 billion in savings with 
this new system starting in 2017, you know, which sort of takes 
this thing out of just the--sort of the theoretical and into 
real numbers, which obviously is important to everybody in this 
committee who has been going through these hearings on the 
challenges facing the Pentagon coming up.
    Can you talk a little bit about, you know, what--where does 
that come from? Is that, you know, waste, fraud and abuse? Is 
that, you know, other ways that you can feel comfortable 
projecting that savings?
    General Stevenson. Sure. It comes from a number of 
different locations, but probably the one that is I think the 
easiest to understand is we will not have to do so much 
reconciling between separate instances. Today the 
architecture--and I was going to, sir, answer your question if 
it had gotten to me--that our biggest problem has been our 
architecture. We have got stovepipe systems at each of our 
echelons that have to then pass the data at end-of-day 
processes. And if the communications somehow get interrupted in 
part of that--and if you can imagine doing that in Afghanistan 
or Iraq--then maybe there is pieces of that data you are 
missing, you are losing or it posts after--because data is 
important to be posted in a time sequence manner. And so you 
end up having to have lots of people at each of the echelons 
and in the financial community trying to match the receipts, 
the issues, the cancellations, the change--did it get charged 
against the ledger, did it not get charged against the ledger. 
All of that is going to go away in our ERP system because it 
will all be a Web-based system operating off of a single 
database and so that there is no need to reconcile anything. 
And all of that I think is going to go away and that will be a 
huge part of what we save.
    Mr. Courtney. I mean, that sounds like actually a fairly 
modest, you know, prediction on your part because you are not 
sort of getting into other ways that you may pick up, you know, 
duplication or waste or whatever, I mean. So I guess we have 
got nowhere to go but up from that $8 billion figure assuming 
you have got a really high functioning system. Is that a safe 
statement to make?
    General Stevenson. I think so. And of course there is costs 
associated with implementing the system. So what we have tried 
to do is figure out through a business case what is the net 
savings to the Army. We think our payback starts in 2019, that 
we will have paid for what we have done in just that short 
period of time.
    Mr. Courtney. Admiral, you have been nodding your head. I 
don't know if you want to chime in.
    Admiral Architzel. I couldn't agree more with the--the ERP 
for us within 1-0--it is really acquisition financial 
management. When you get to 1-1, that is our single supply 
system. So when we get into that--by having that across the 
Navy, if you will, in our SYSCOMs [System Commands] and into 
the NAVSUP [Naval Supply Systems Command], we then have 
visibility on all of our supply pieces and parts, which is the 
first time you can actually see end to end. You want to see an 
F-18 all the way down from when it is on the flight line to the 
parts that are supported and needed and where those parts are 
and where they exist, and that would reduce sparing, it would 
reduce warehousing. That is where you will get significant 
savings from ERP, above and beyond that which you get--and I 
mentioned before--the business end of doing accounting and 
reconciliation which is on the 1-0 piece. So I think it is a 
tremendous one in there.
    I do have some concerns and that would be, you know, in 
terms of it is not a simple thing to do to take the inventory 
today and map them into ERP. It is a very time consuming effort 
to go forward. We are in a phased approach to do that, And I 
know we will get there. But it is not a given that it will be a 
simple bill, but it is well worth the effort in doing that.
    Mr. Courtney. And in terms of, you know, trying to get the 
resources there to get that transition done--I mean, Admiral 
Roughead has talked about, you know, the fact that with--again 
some of the cost savings and efficiencies that the Navy needs 
to find, that a lot of personnel are going to be sort of being 
moved closer to the waterfront and out of sort of, you know, 
offices. Is that going to kind of create a challenge in terms 
of that? Or is that something that you think the Navy can 
handle, assuming again people are being deployed a little bit 
more in frontline positions?
    Admiral Architzel. Well, personally I think we need to move 
people closer to the flight line. That is where the activity 
is. That is where our support is to the warfighters, at the tip 
of the spear if you will. So I am an advocate for things--in 
our FRCs [Fleet Readiness Centers], for example, about moving 
those assets closer to the flight line, about being able to 
have them spread to where our fleets concentration areas are. 
So I think that is a proponent of it.
    There is an inherent problem in how we did contracting 
before in some areas when you get into supply systems. If I was 
to look at a previous contract, you would see there would be a 
line item that would say spares. And it would have, who knows, 
800 spare items that would be listed, but they would be 
listed--and that was just one line item in there that says 
spares under an equipment line item number. Within that and 
made an appendices to that would be handwritten inventories 
that goes with those spares. To go forward in the ERP, what we 
need to do under improving the system would be to break those 
out into individual line items that come right down--and you 
can call out then. And then from the day you award that 
contract, you can track that spare from contract award--DFAS 
can track it, we can track it, supply systems can track them 
all the way through. And that is what will eventually lead to 
the ability to do the things like valuation and configuration 
management and accreditation.
    Mr. Courtney. Thank you.
    Mr. Conaway. We will do a second round if everybody has 
questions.
    Human nature is such that you are comfortable with doing 
things the way you have done it in the past. And you have all 
talked about legacy systems. And there is a tension because all 
of this change you are doing is--you don't get to take a year 
off from everything else you are doing in order to make this 
happen, you have got to continue to provide whatever data you 
have been providing at the exact same time. But you don't get 
to double your workforce to do this. You just have to--
everybody has to do it. So there is--I have observed in the 
past--a tendency to hang on to stuff longer than you needed to.
    We have talked to the other folks about this as well. How 
best do you track the demise of legacy systems and all of the 
associated costs that go with just maintaining those and the 
extra work that is associated with that? How do you track--do 
you have a plan that says at the end of the day we are going to 
have all of these legacy systems that are going to be gone so 
that you know and from our oversight standpoint that we will 
know that you are down to just those systems that are needed 
and necessary to make this thing work and we are not clinging 
to something because it is just an old comfortable pair of 
shoes that work?
    Martha, do you want to start?
    Ms. Smith. Sure. Within the DFAS walls, we have eliminated 
a lot of systems over the years. And we are seeing the benefits 
of the ERP. And believe me, we would like to see the legacy go 
away as fast as possible. However, we have been dealing with 
the legacy for a long period of time. So in terms of the data 
flows, we have got that pretty well nailed down and then we 
are, you know, adding the ERP stuff to it. But within the DFAS 
systems, we have eliminated a lot of systems. We have tracked 
that. And we are pretty comfortable with the new systems that 
we have in place now. So I think we are moving along in the 
right direction in that area.
    General Fedder. Mr. Chairman, frankly I don't think that 
there is any tendency in the Air Force logistics community to 
want to hang on to those legacy systems when we have the 
opportunity to transition to something like an ERP, 
specifically for the Air Force, the expeditionary combat 
support system. We have seen in the pilot of ECSS 
[expeditionary combat support system], although that hasn't 
yielded as much information as perhaps the other service ERPs 
have yielded so far, but we have seen the value in being able 
to better provide that total asset visibility.
    So for the airman at the unit level who is responsible for 
receipt, proper storage and accountability of spare parts, for 
instance, that airman can easily see through the ERP system and 
the way that system is going to provide connectivity with all 
our systems. They can see the value of the workload that is 
reduced associated with that in delivering a better product to 
the warfighter.
    Admiral Architzel. Mr. Chairman, it is a great question and 
it is not an easy one. Let me just try and say that on the 
outset, certainly legacy systems--I think personally we need to 
look at legacy systems in a way that some legacy systems are 
not all bad. We need to understand what they are and not just 
make this blanket statement that all legacy systems are bad. 
Let me explain.
    When I talked about Sigma, we came on ERP in Navy, NAVAIR, 
we had about 55 systems retired. And those were principally in 
financial management areas we could do that. Since we have been 
on ERP, one of those systems we retired actually is Sigma. So 
there has been four. The Navy is on track--I believe the number 
is 196 retired legacy systems with about 14 done to date. But 
when you look at what it is--I would say that in the area of 
NAVSUP, for example, they retired legacy systems that were 
based on FORTRAN [IBM Mathematical Formula Translating System] 
and those kind of things. They needed to be retired. There are 
going to be tremendous savings. But I look at today--your point 
is a good one. I have to operate today and provide direct 
support to the fleet out there, to the Hornets that are on 
station, the 60 ``Romeos'' [MH-60 Seahawk helicopters] that are 
out there and know what is their configuration, what is their 
ECPs [engineering change proposals], what do they need, know 
what their health and management systems are. I have vehicles 
today to do that. They could be supplanted or taken over into 
an ERP system. We need to carefully evaluate what the costs are 
to do that and what the true benefit is of that. So there is a 
place when we do this in a metered fashion, not just to say 
blanketly we are going to get rid of every system.
    Mr. Conaway. But you have got a plan to track that?
    Admiral Architzel. Yes, sir. Absolutely.
    General Stevenson. Sir, I have been appointed the logistics 
domain owner for all logistics systems in the Army. We started 
out with over 800 different systems, some small, some large. 
And my goal is to reduce them down to our ERPs. And as of the 
last--I do a quarterly review. As of last review, I think we 
are down to about 160. I also control the dollars that sustain 
those systems. So it will be very easy, I think, to enforce 
discipline in getting rid of them.
    Mr. Conaway. Thanks. Rob.
    Mr. Andrews. Thank you, Mr. Chairman. General Stevenson, 
thank you for your testimony. I also wanted to explore, as Mr. 
Courtney did, the genesis of this $8 billion savings estimate. 
Could you walk us through how you derived that projection?
    General Stevenson. Yes, sir. It comes from a number of 
components. One is inventory reduction. We think that there is 
about $2.0 billion worth of inventory reduction we can get to 
by having visibility over what we have got, being able to move 
it around and not have individual entities buying their own.
    Mr. Andrews. Let us not have more than we need?
    General Stevenson. Exactly. There is reorder costs that go 
on because they are not sure whether what they have got on 
order is coming to them because they don't have visibility of 
where it is. It is kind of the Amazon.com capability that we 
lack today in the Army.
    Mr. Andrews. If this works with teenage girls, let me know 
because we can try it at our house, too.
    General Stevenson. It is an area of concern. And I just 
last week had a large meeting with--the RAND Corporation is 
doing some work for us on excess--excess orders we are 
generating. And a lot of it comes from lack of confidence. I 
talked about the component associated with reconciling records 
at various levels. And it is a combination of all of those 
things and some others that I can't recall off the top of my 
head that contribute towards this business case that says by 
2019 you will have paid for.
    Mr. Andrews. Is the $8 billion over what period of time?
    General Stevenson. Through the life of the system, through 
10 years.
    Mr. Andrews. So roughly 10 fiscal years. Let me ask sort of 
a very basic question to each of you from the Services.
    General, if I wanted to know how many radio parts existed 
for a certain airplane today and I needed to find one, how 
quickly could your group find that part and know how many that 
you had? Say we needed that answer ASAP. How quickly could you 
get the answer?
    General Fedder. Sir, within an hour we could go to the 
standard base supply system, which is our current retail level 
supply inventory, and identify by stock number where those 
radio parts----
    Mr. Andrews. And you have a high degree of confidence that 
would be right?
    General Fedder. Yes, sir.
    Mr. Andrews. Good.
    General Fedder. Yes, sir.
    Mr. Andrews. Admiral, what if I wanted to know how many 
cases of water we have on Navy ships at this moment, could we 
know that?
    Admiral Architzel. I would go to the supply system to get 
that answer. But in terms of what I would tell you--within our 
aviation and logistics environment, our automated logistics 
environment, today in the Naval Supply program--within the 
naval enterprise, we are very able to extract what equipment we 
have and what ECPs are on--sorry--what do we have to have, what 
the inventory--what parts and pieces we have and need.
    Mr. Andrews. Could you get that answer for us pretty 
quickly?
    Admiral Architzel. Yes, sir.
    Mr. Andrews. High degree of confidence again?
    Admiral Architzel. I do. Absolutely.
    Mr. Andrews. And, General, you and I talked the other day a 
little bit about this. But if we wanted to know how many of 
those clamshells we have in Iraq and the degree of disrepair or 
repair they are in, how quickly could you get that answer?
    General Stevenson. Sir, the number, easy. In a matter of a 
quick inquiry. The condition, I would have to go ask. And that 
just takes time because----
    Mr. Andrews. So we don't have a database that exists 
necessarily about the condition of the assets at all times?
    General Stevenson. Not when it is in the hands of the user. 
And that is part of our problem. I mentioned the architecture 
of our current systems.
    Admiral Architzel. There is another aspect, if I could, 
sir. It is the value of that system, too. So that is part of 
what we have to have for audit readiness. And I think that is a 
concern we are all going to have to come back with. We can do 
that, but it will be very manual intensive.
    Mr. Andrews. I really appreciate you saying that, Admiral, 
because one thing we have learned from our panels of witnesses 
is that there is a real difference here between the quantity of 
the number of things you have and the value of them. And the 
value process is a subjective process, as well as an objective 
one, which means that producing financial statements for the 
military is a sui generis project. I don't think it is quite 
like producing financial statements for a retail store or a 
homebuilder because, A, you don't really know the market value 
of goods because some don't have a market value. And, B, you 
don't know their utility because they are in far-flung places 
around the world and what not. So we do appreciate the 
complexity of the problem.
    I think this has been an excellent panel doing excellent 
work, and I appreciate each of you. Thank you.
    Mr. Conaway. Let me ask one other question. I want to make 
sure our witnesses get their money's worth for the preparation 
that was done. Thank you for whatever it is you guys did to 
come here today and put that together. Leadership is key at 
every single level. Are we far enough along in this process 
that when your replacements show up and somebody moves into 
those slots, that the forward momentum is such that it is going 
to happen or what is it that you are looking for to make sure 
this process does get completed when there is a change of 
leadership? General Mitchell, you mentioned the other day you 
have got enough skin in the game that you own some of this, you 
really want to make it happen. So how do each of your 
organizations make sure that new leadership has the same 
understanding of how important this is and that we don't lose 
any ground just because we changed the top person?
    General Stevenson. Sir, I think in our case we have got the 
design work done and that is really the key, because all we 
have got to do now is implement what we have designed, and I 
think we have irreversible momentum toward that end state. Now, 
it could get interrupted by a lack of resources and certainly 
we are counting on being able to continue to make the 
investments we need to make. It is fully funded in our program. 
But, you know as well as I do that could get interrupted in any 
year. But absent that, I think we are on a path toward 
irreversible momentum to get it done.
    Admiral Architzel. Sir, I think it is fundamental to 
everything we do in the military when you look at command 
structures and how we do things. Measure my performance, not 
where I am in NAVAIR today. Come back in a year and tell me how 
NAVAIR is doing and I will tell you how I did in command. So it 
is a reflection of what we instill and what we pass through. 
This is a team effort. It is not one carried by one individual 
by any means. I don't have the background or the knowledge to 
do this alone. So we rely on everyone. I am absolutely 
confident that it will be enduring.
    General Fedder. Mr. Chairman, in the logistics environment 
at the execution level, the continued ability for an airman to 
make sure that inventory is right, that they store it right, 
that they stock it right, all of those are again fundamental 
parts of what we do in logistics. But to capture the momentum 
that we have going towards ensuring audit readiness, we have 
included in the Inspector General system a special interest 
item to reconcile what we are doing at unit level that is going 
to drive us to audit readiness. We have captured it in our 
logistics assessment systems, performance measures for civil 
service members, as we talked about a little bit earlier, 
things like policy.
    But I would say in addition to all of those measures, the 
continued DOD leadership focus on this and certainly the 
interests and involvement of Congress and your panel here to 
make sure that we continue down this path will make a big 
difference.
    Ms. Smith. I think it goes back to making sure that the 
culture of the entire organization is focused on the priorities 
and the strategy, and I think we have done that pretty well in 
the DFAS world. We haven't finished pushing it all the way down 
to our lower level individuals, but our trainees and our 
accountants that are coming in the door, the first thing that 
they are trained on is how do we get our processes to be better 
and how do we focus on fixing the issues with the systems, and 
so on and so forth.
    We have tried to change our culture from fixing the 
problems at the top to fixing the problems at the source, all 
the way down into the organization. So that is how we are 
trying to keep it flowing.
    Mr. Conaway. Rob, do you have anything else?
    Mr. Andrews. No. Thank you again. I would like to thank the 
witnesses for an excellent presentation.
    Mr. Conaway. I give the witnesses an opportunity to say 
whatever it is that you wanted to say that we didn't ask or you 
didn't get it in your opening statement. Anything that anybody 
wants to add for the record?
    Again, thank you very much for being here and the meeting 
is adjourned. Thank you.
    [Whereupon, at 8:55 a.m., the panel was adjourned.]


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                            A P P E N D I X

                           September 15, 2011

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              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                           September 15, 2011

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


              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                           September 15, 2011

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                   QUESTIONS SUBMITTED BY MR. CONAWAY

    Mr. Conaway. Your testimony stated the Army will achieve $8 billion 
in savings through the fielding of the Global Combat Systems Support-
Army (GCSS-A) program. Please explain when and how you will realize 
these savings.
    General Stevenson. Eight billion dollars is the value of the 
estimated net benefits from implementing GCSS-Army. Net benefits are 
the difference between total benefits and the cost of developing, 
implementing and sustaining GCSS-Army between now and 2027. Net 
benefits include inventory reductions, reparables tracking, costs of 
reorder (acquisition costs), legacy systems operation and upgrades and 
productivity enhancements. Benefits slowly begin to be accrued in 2013, 
with a rapid increase beginning in 2017 (when legacy systems are shut 
down) and break even in 2019.

    Mr. Conaway. In his testimony, Lieutenant General Mitchell 
Stevenson indicated the U.S. Army expects to generate $8 billion in net 
savings between 2017 and 2027 with the implementation of the Global 
Combat Support System-Army (GCSS-Army). He noted that the savings come 
from a number of different locations, such as reductions in inventory, 
re-order costs, and excess orders and increased efficiencies (e.g. 
eliminating the need to perform reconciliations between stovepipe 
systems). This situation is not unique to the U.S. Army. What financial 
benefits/costs savings does your Service expect to generate as a result 
of implementing ERPs? Please explain what additional tangible benefits 
you expect to see as a result of using ERPs.
    Admiral Architzel. The Navy has conducted extensive analysis of 
realized and expected benefits due to the implementation of Navy 
Enterprise Resource Planning (N-ERP). Our analysis has resulted in 
quantifiable inventory reduction and legacy system retirement metrics. 
In addition to metrics that can currently be quantified with a high 
degree of confidence, the Navy also expects to realize tangible 
benefits from N-ERP in terms of enabling and sustaining cost effective 
audit readiness through improved financial controls by FY 2017.
    Inventory Savings across the FYDP (FY12-17) equal $276M. Savings 
have been documented in PBIS as a Navy Working Capital Fund reduction. 
Inventory Cost Avoidance Post FYDP (FY18-23), defined as costs that 
would have been incurred, but will be avoided as a result of Navy ERP, 
equal $456M. (See attachment 1 on page 60.)
    Legacy System Retirement Savings across the FYDP (FY12-17) equal 
$350M. Savings have been documented in PBIS as a Navy Working Capital 
Fund Reduction. Legacy System Retirement Cost Avoidance across the FYDP 
(FY12-17), defined as costs that would have been incurred, but will be 
avoided as a result of Navy ERP, equal $436M. Legacy System Retirement 
Cost Avoidance Post FYDP (FY18-23), defined as costs that would have 
been incurred, but will be avoided as a result of Navy ERP, equal 
$618M. (See attachment 2 on page 61.)
    Total Savings from Inventory Reduction and Legacy System 
Retirement: $626M Total Cost Avoidance from Inventory Reduction and 
Legacy System Retirement: $1,510M Total Savings & Cost Avoidance: 
$2,136M




    Mr. Conaway. In his testimony, Lieutenant General Mitchell 
Stevenson indicated the U.S. Army expects to generate $8 billion in net 
savings between 2017 and 2027 with the implementation of the Global 
Combat Support System-Army (GCSS-Army). He noted that the savings come 
from a number of different locations, such as reductions in inventory, 
re-order costs, and excess orders and increased efficiencies (e.g. 
eliminating the need to perform reconciliations between stovepipe 
systems). This situation is not unique to the U.S. Army. What financial 
benefits/costs savings does your Service expect to generate as a result 
of implementing ERPs? Please explain what additional tangible benefits 
you expect to see as a result of using ERPs.
    General Fedder. We expect to realize approximately $2.84B in net 
savings from our ERP investments over the period from 2017-2027. Like 
the Army, savings will come from a number of business elements. Savings 
come from eliminating thousands of system interface requirements and 
hundreds of system modernization efforts. The Air Force will reduce or 
eliminate contract support requirements, maintenance costs, and 
upgrades for hundreds of core legacy systems that are technically 
obsolete, not well integrated, lack necessary internal controls, are 
costly to operate, and drive manual rework and reconciliation. By 
reducing the amount of time Airmen spend on administrative processes, 
more time will be available to devote on tasks directly supporting the 
warfighter.
    The AF has three ERPs that are part of our target environment. 
These are the Defense Enterprise Accounting and Management Systems 
(DEAMS), the Expeditionary Combat Support System (ECSS), and the Air 
Force Integrated Personnel and Pay System (AF-IPPS). DEAMS provides the 
Air Force with a transaction-based general ledger, which is the 
foundation for auditable financial statements and replaces nine legacy 
systems. This capability enables accurate and timely financial 
statements, accurate budget forecasting, and enhances our ability to 
reduce unliquidated obligations and accounts receivable by $1.67B from 
2017-2021. ECSS will streamline the supply chain management process in 
the Air Force and is scheduled to replace 240 legacy core logistics and 
financial systems and 564 interfaces with an estimated 10-year net 
benefit of $0.67B. ECSS savings estimates have been revised downwards 
as a result of current program performance, and may increase with 
successful program implementation. AF-IPPS will serve over 500,000 
military members via a single, seamless personnel and pay solution for 
the Air Force's Active Duty, Reserve, and Guard components. AF-IPPS 
will retire 20 legacy information technology platforms, and save more 
than $0.5B in system operation costs during the lifecycle. AF-IPPS will 
reduce today's 85,000 annual pay cases by 75% and improve payroll 
timeliness from 93% to 97%.

    Mr. Conaway. As the agency that provides financing and accounting 
services to the Department of Defense, the Department's transfers to 
ERPs has a direct impact on DFAS and its ability to do its job.
    a) What challenges are DFAS experiencing as a direct result of the 
Department's transitions to ERPs?
    b) What is DFAS doing to address these challenges?
    c) On the other hand, what benefits/costs savings has DFAS seen and 
expect to see as a result of the ERPs being implemented by the military 
services?
    Ms. Smith. a) DFAS is working diligently with the Military Services 
and Defense Agencies to implement the Enterprise Resource Planning 
(ERP) systems. Full software maturity is an evolutionary process and 
the ERP ``out-of-the-box functionality'' in many cases does not include 
the full operational capability of the legacy systems being replaced. 
Legacy systems matured over decades to reach full operational capacity. 
Similarly, incremental product enhancements are needed within the ERP 
environment to reach full capability. As one of many users of the ERP 
systems, DFAS is operating within risk tradeoff decisions that the ERP 
functional sponsors and Programs Managers (PM) must make regarding 
cost, schedule, and performance. When performance risk is accepted for 
cost and schedule priorities, operational users experience ERP 
implementations that do not effectively meet mission needs or are 
easily integrated into current operational business practices. ERP 
systems can also inadvertently reinforce the organizational status quo, 
rather than contribute to significant organizational change when 
implemented due to cost, schedule, and scope constraints. Finally, 
regardless of the amount of planning, testing, and Business Process 
Reengineering (BPR), challenges are not always realized and correctable 
until the system is in production. Coupled with the risk tradeoffs are 
the challenges of both complexity and size of the DOD. The DOD involves 
complex functions to execute its mission, creating a vast scope to 
deliver full operational capability. DFAS challenges arise when not all 
mission essential capabilities of the legacy systems are included by 
the ERP at implementation, thereby requiring the sustainment of legacy 
systems concurrently with ERPs. Another contributing factor is that FM 
requirements are only one of the ERP capabilities and priorities being 
implemented. There are many sets of requirements competing for 
priority: Human Resources, Acquisition, Real Property, Logistics, 
Personnel & Readiness, and FM. When FM requirements are not met, system 
capability gaps exist. To address these gaps, DFAS utilizes manual 
workarounds or other interim processes pending the identification, 
prioritization, and implementation of the needed FM requirements.
    b) To tackle these challenges, DFAS continues to create better ways 
to conduct business and improve the efficiency and effectiveness of 
ERPs. DFAS is identifying essential information required for the 
successful integration of the ERP systems into the DFAS mission during 
and post-implementation of ERP systems. For each system implementation, 
DFAS is coordinating, collaborating, and integrating with the ERP 
Program offices to identify, and prioritize functions and processes to 
increase the efficiency of the ERPs. DFAS advocates end-to-end testing 
(E2E) methodology to ensure system interoperability, verifying the 
overall process is integrated and flows correctly throughout the 
systems. In ERP post-implementation environments, Joint Solutions Teams 
(JSTs) are established to create and manage a centrally maintained 
database of DFAS ERP post-implementation issues and lessons learned, 
with a goal to develop shared solutions to common problems. The intent 
is to also define and articulate DFAS' priorities for future system 
development and to concentrate on resolving issues that will provide 
the largest return for DFAS and its customers. Common DFAS issues 
identified across an application (e.g., SAP, ORACLE, etc.) can also be 
elevated directly to ERP software vendors to elicit a vendor-based 
solution, such as the current 3 percent income tax withholding mandate. 
In addition, there are also post-implementation opportunities to 
optimize the ERP systems to both maximize inherent system capabilities 
and facilitate process improvements. DFAS is focusing on ERP 
optimization to perform BPR, implement incremental product enhancements 
to the ERP systems, and leverage additional features within the 
applications to enable business transformation. This effort goes hand 
in hand with the culture of process improvement embedded within DFAS. 
ERP systems are very complicated software packages that support entire 
organizational activities, and DFAS is working in collaboration with 
our customers to address these system challenges and move forward.
    c) To date, the benefits that DFAS has seen include increased and 
strengthened internal controls, improved business practices, and 
increased reliability of financial data. The ERPs have standardized and 
streamlined our business processes, provided a single source for 
financial management information, and increased transparency and 
accuracy of transaction level data allowing for more timely and better 
decision making. Through these implementations, DFAS, in partnership 
with our customers, has made progress towards changing our systems, 
processes, and workforce to move us closer to improving financial 
management practices across DOD and achieving audit readiness. As ERPs 
continue to be fielded, we expect to achieve the benefits of 
integrating business applications and functions to provide consistent, 
single source data which can be traced and validated from the beginning 
of the transaction entry to the financial statements. Other benefits 
include more efficient and streamlined business processes, increased 
compliance with the Federal Financial Management Improvement Act (FFMIA 
including uniform use of the United States Standard General Ledger 
(USSGL), and implementation of Standard Financial Information Structure 
(SFIS) a common business language to support information and data 
requirements for budgeting, financial accounting, cost/performance 
management, and external reporting across the DOD enterprise. ERPs 
provide more efficient data collection capabilities and an 
infrastructure to support more timely responses to auditor's data 
requests, and standardized financial reporting across DOD, thereby 
reducing the cost of auditability. In the future years, we expect to 
realize cost savings from legacy system retirements. DFAS, in 
conjunction with our customers, will continue to embrace the challenges 
and opportunities that exist with implementing new systems and maximize 
the benefits derived in order to reach the goal of financial 
improvement and auditability.

                                  
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