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






                                     

                         [H.A.S.C. No. 112-83]

 
                   DOD'S ENTERPRISE RESOURCE PLANNING
                  (ERP) SYSTEM IMPLEMENTATION EFFORTS

                               __________

                                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

                            OCTOBER 27, 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

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2011

                                                                   Page

Hearing:

Thursday, October 27, 2011, DOD's Enterprise Resource Planning 
  (ERP) System Implementation Efforts............................     1

Appendix:

Thursday, October 27, 2011.......................................    23
                              ----------                              

                       THURSDAY, OCTOBER 27, 2011
 DOD'S ENTERPRISE RESOURCE PLANNING (ERP) SYSTEM IMPLEMENTATION EFFORTS
              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

Fanning, Eric, Deputy Under Secretary of the Navy and Deputy 
  Chief Management Officer, U.S. Navy............................     6
Khan, Asif A., Director, Financial Management and Assurance, 
  Government Accountability Office...............................     9
Lewis, Mark, Deputy Chief Management Officer, U.S. Army..........     4
McGrath, Hon. Elizabeth, Deputy Chief Management Officer, U.S. 
  Department of Defense..........................................     3
Tillotson, David, III, Deputy Chief Management Officer, U.S. Air 
  Force..........................................................     8

                                APPENDIX

Prepared Statements:

    Conaway, Hon. K. Michael.....................................    27
    Fanning, Eric................................................    47
    Khan, Asif A.................................................    62
    Lewis, Mark..................................................    38
    McGrath, Hon. Elizabeth......................................    29
    Tillotson, David, III........................................    54

Documents Submitted for the Record:

    ``Best Practices in Data Conversion,'' by the DOD Office of 
      the Deputy Chief Management Officer........................    83

Witness Responses to Questions Asked During the Hearing:

    Mr. Andrews..................................................    99
    Mr. Young....................................................    99

Questions Submitted by Members Post Hearing:

    Mr. Conaway..................................................   103
 DOD'S ENTERPRISE RESOURCE PLANNING (ERP) SYSTEM IMPLEMENTATION EFFORTS

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
    Panel on Defense Financial Management and Auditability 
                                                    Reform,
                        Washington, DC, Thursday, October 27, 2011.
    The panel 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. Well, good morning, everybody. We will go 
ahead and start. The clock on the back of the wall has 
officially gone to 8:00. I would like to welcome each of our 
witnesses to the hearing this morning on Enterprise Resource 
Planning Systems, the implementation efforts. In all of our 
previous hearings, regardless of topic, ERP [Enterprise 
Resource Planning] systems are always an integral part of the 
discussion.
    Whether the discussion is centered around the skills needed 
within the management workforce, accountability of assets or 
the controls needed to prevent potential Antideficiency Act 
violations. So it is fitting that the panel today hold a 
separate hearing on the Department of Defense Enterprise 
Resource Planning Systems.
    Today we will examine the scope of the ERP efforts and the 
status of implementation of the ERPs and their ability to 
improve the Department's financial management. According to DOD 
[Department of Defense], the successful implementation of the 
ERPs is a key element to addressing longstanding weaknesses in 
financial management and achieving audit readiness. Yet, GAO 
[Government Accountability Office] has reported over the years 
that the Department has not effectively employed acquisition 
management controls to ensure the ERPs deliver the promised 
capabilities on time and within budget.
    The GAO has also reported that delays in the successful 
implementation of ERPs have extended the use of existing 
systems and continue the funding of these legacy systems longer 
than was planned. The Department of Defense OIG [Office of 
Inspector General] noted in its testimony before the Panel in 
September, that the development, implementation and 
effectiveness of these ERP systems are questionable at this 
point.
    With billions of taxpayer dollars at stake, it is critical 
that the Department of Defense take the necessary actions to 
ensure that ERPs are successfully implemented. The Secretary of 
Defense directed the Department to move up the audit readiness 
date of the statement of budgetary resources from 2017 to 2014. 
However, certain of the ERPs are not scheduled to be fully 
deployed until near or during 2017.
    In order to meet the 2014 deadline, will the Department 
move up the ERP deployment dates, make enhancements to the 
existing legacy systems, improve manual controls or some 
combination of the three? Also will the DOD need additional 
resources for these efforts? We will be interested in getting 
some insight today for the Department of Defense's approach to 
accomplishing this goal.
    One of the key responsibilities of the Department of 
Defense deputy CMO [Chief Management Officer] and the military 
department CMOs and their respective deputies is to support 
business system modernization efforts in a manner that 
synchronizes these efforts with the financial improvement 
activities of the reporting entities. This becomes all the more 
important as DOD works toward achieving audit readiness of the 
SBR [Statement of Budgetary Resources] by 2014, while also 
keeping on track to achieve auditability for the full set of 
financial statements by 2017.
    I want to thank our witnesses for coming today. We have 
with us today the Honorable Elizabeth McGrath, Deputy Chief 
Management Officer, Department of Defense, Mark Lewis, Deputy 
Chief Management Officer of the United States Army, Eric 
Fanning, Deputy Undersecretary of the Navy and Deputy Chief 
Management Officer for the United States Navy, David Tillotson, 
III, Deputy Chief Management Officer for the United States Air 
Force and Asif Khan, Director, Financial Management and 
Assurance, GAO.
    Rob, any comments you would like to make before we start?
    [The prepared statement of Mr. Conaway can be found in the 
Appendix on page 27.]

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

    Mr. Andrews. Well good morning, Mr. Chairman. Good morning 
to my colleagues and to the panel this morning. We really 
appreciate the seriousness and devotion that members of this 
panel have given to this joint enterprise. You have all 
contributed in a very valuable way already and we are anxious 
to hear from you this morning.
    The problem with the enterprise systems is the best case 
study as to why we need auditable financial statements. We 
spend a lot of money, a lot of time, very mixed results and we 
really can't quite figure out why. Now people have theories and 
they have ideas, but one of the reasons we can't really quite 
figure out why is because the data that would lead us to the 
conclusions as to why we have had trouble, aren't themselves 
reliable because we don't have a system that can generate the 
right data.
    It is a classic chicken-and-egg problem. You can't figure 
out why we couldn't get the enterprise systems right until you 
have a system that tells you what happened. And you can't have 
a system that tells you what happened until you get the 
enterprise systems right. So I am glad that we have identified 
the problem. I am quite confident that the men and women that 
we have working on solving the problem have very high skills 
and very good intentions and are very devoted to the cause.
    So we are very glad to hear from you this morning, but 
several of the panel members have said a number of times, how 
do I explain to people back in my district what we are trying 
to do here and what the problem is? And the way I look at 
boiling this down to its most simplistic form is that over the 
last decade or so, I guess longer, the taxpayers have spent 
billions of dollars to collapse dozens or hundreds of systems 
that aren't compatible into 10 that--I guess it is 10, that 
work.
    And we are not quite there yet. And there are a lot of 
bumps in the road and they would be astonished at that. They 
wouldn't be very happy about that. And I don't think anybody 
here is either. So, our collective mission is to figure out 
where we are, how to get to where we need to be and I think our 
job as members of Congress is to give you the tools and 
resources to get you there.
    So I look forward to hearing the testimony this morning and 
asking questions. And I thank you Mr. Chairman for calling the 
hearing.
    Mr. Conaway. Thanks, Rob. I appreciate that.
    Ms. McGrath. Your opening statement.

 STATEMENT OF HON. ELIZABETH MCGRATH, DEPUTY CHIEF MANAGEMENT 
              OFFICER, U.S. DEPARTMENT OF DEFENSE

    Ms. McGrath. Good morning. Chairman Conaway, Congressman 
Andrews, other members of the panel, thank you for the 
opportunity to return to this panel and discuss the role of the 
Enterprise Resource Planning Systems in achieving our audit 
readiness goals at DOD. Secretary of Defense Panetta recently 
highlighted the importance of auditability for the Department.
    He discussed it earlier this month in his testimony before 
the full House Armed Services Committee, also in his October 
13th policy memorandum to the Department, which mandated the 
acceleration of certain aspects of the Department's Financial 
Improvement and Audit Readiness plan in order to ensure we 
achieve the Congressionally mandated audit of 2017.
    He noted auditability is a goal every commander, manager, 
functional specialist must understand and embrace to improve 
efficiency and accountability. DOD has made substantial 
progress over the last 2 years to improve its business 
processes, financial controls, workforce and defense business 
systems. But a significant amount of work still lies ahead.
    Implementation of systems to include ERPs is an important 
component of our progress as the chairman noted. As Secretary 
Panetta said, while the department systems do tell us where we 
are spending taxpayer funds, we do not yet have the details and 
controls necessary in place to pass an audit. The Secretary's 
mandate underscores the partnership between the Under Secretary 
of Defense, Comptroller's office, my office, the military 
department Chief Management Officers and the Department's other 
functional business owners.
    All of which will be required to achieve our audit goals. 
We consistently work together to ensure that we are effectively 
synchronizing our broader business improvement efforts with the 
Department's audit readiness goal. It is a part of our broader 
business conversation. By improving our business systems 
environment by implementing ERPs, modernizing legacy systems 
when there is a business case that supports it and certainly 
sunsetting legacy systems not aligned with our business 
objectives.
    The design principles within ERP directly enable key 
elements of auditability such as, enforcing process and 
execution standardization among implementing organizations, 
managing consolidated business data into a single repository 
that allows centralized access control and handles transactions 
from an end-to-end perspective. As Congressman Andrews noted, 
it is all about the data.
    Enabling traceability of transactions, documenting 
repeatable processes and procedures and demonstrating 
compliance with laws, regulations and standards, all part of a 
broader business conversation end-to-end processes which 
systems play a role. Implementing ERPs requires sustained 
commitments from our senior leaders and often requires--I would 
say always requires change of processes and policies to achieve 
successful implementation.
    We have placed significant emphasis on orienting our 
business environment, utilizing our business enterprise 
architecture, defining end-to-end processes that support our 
audit goals like procure-to-pay and budget-to-report. We are 
improving the usability implementation of the architecture 
because if an architecture isn't usable, nobody will use it.
    Very important for us, again documenting the processes, 
understanding the standards and internal controls. Finally we 
are also improving our approach to acquiring and implementing 
our business IT [Information Technology] systems, our new 
acquisition model for defense business systems called the 
Business Capabilities Lifecycle is in use today for a growing 
number of programs across the Department.
    It aligns requirements, investment and acquisition 
processes under an integrated government framework and focuses 
on incremental delivery of capability within 12 to 18 months. 
Achieving auditability across the Department not only requires 
successful modernization of systems, but that we apply a 
consistent level of process controls across our organization 
and functional areas.
    DOD leadership understands this and is committed to 
achieving our audit goal. Thank you again for having me here 
today.
    [The prepared statement of Ms. McGrath can be found in the 
Appendix on page 29.]
    Mr. Conaway. Thanks, Ms. McGrath.
    Mr. Lewis.

STATEMENT OF MARK LEWIS, DEPUTY CHIEF MANAGEMENT OFFICER, U.S. 
                              ARMY

    Mr. Lewis. Chairman Conaway, Congressman Andrews, members 
of the panel, thank you for the opportunity to testify today 
regarding the Army's efforts to implement its Enterprise 
Resource Planning Systems and other actions related to audit 
readiness. This is an important topic with regard to the 
Department of Defense's effort to achieve auditability by FY 
[fiscal year] 2017.
    And I am honored to have that opportunity to represent the 
Army before your panel. The Army believes it has set the 
conditions towards achieving auditability. At this point we 
believe that the Army will be able to comply with both the 
interim target, specified in the fiscal year 2010 National 
Defense Authorization Act which states for 2015 and to assert 
audit readiness by fiscal year 2017.
    We have increased leader involvement and emphasis from the 
Secretary of Defense through the Secretary of the Army and the 
Under Secretary of the Army in his role as the Chief Management 
Officer. The Secretary of Defense most recently indicated his 
intent with his 13 October memo directing the Department to be 
able to assert audit readiness for the statement of budgetary 
resources by 2014.
    We are currently in the 60-day period for review of our 
plans as he directed. The Army has implemented enterprise 
governance over business processes and systems involving all 
the key members of the Army staff and Army commands. These 
forums bring together the experts and manpower, personnel, 
logistics, facilities and intelligence in addition to, of 
course, the financial management and comptroller personnel and 
functions.
    Under the guidance and direction provided by the assistant 
Secretary of the Army for financial management and comptroller, 
we have created and implemented the Army's Financial 
Improvement Plan, FIP, which is the Army's roadmap to audit 
readiness and ensures alignment with the OSD [Office of the 
Secretary of Defense] Financial Improvement and Audit 
Readiness, FIAR, Guidance.
    The Army is developing and fielding four ERPs which will 
greatly support audit readiness as has been mentioned, by 
providing traceability of actions from source to statement 
using documented and disciplined processes and demonstrating 
compliance with laws, directives and standards. Using our 
business governance forms, we are conducting end-to-end process 
mapping and continuous process improvement to optimize our 
business processes and identify gaps and redundancies in our 
systems.
    These actions are continuous and ongoing efforts. With your 
support and assistance, the Army has provided adequate funding 
to our ERPs and remaining legacy systems for development and 
sustainment. Finally, we have established a culture with 
ongoing training in business case management, cost containment 
to help ensure that we use our resources efficiently and 
effectively. Good stewardship of the taxpayers' dollars is 
nonnegotiable.
    Being financially auditable requires input from many 
financial feeder systems. However the ERPs are the glue that 
supports the financial auditability.
    GFEBS [General Fund Enterprise Business System] will 
consolidate the management and reporting of our general funds 
and assets across the Army enterprise. GFEBS is on track to be 
deployed to 160 locations later this year and will replace over 
106 legacy systems when they are audited and certified for 
removal. GFEBS also provides for real property accountability.
    Next, the global combat systems support Army. GCSS [Global 
Combat Support System]-Army is presently undergoing initial 
operating tests at Fort Bliss, Texas. This is the first 
location where both GFEBS and GCSS-Army are deployed jointly 
and offers us the opportunity to test the financial interfaces 
between the two ERPs in a live environment.
    GCSS-Army contains the master database for Army equipment 
and will enhance asset transparency and visibility. A key 
aspect of our 2017 auditability goals. Right now initial 
indications from that test, things are going as expected, well.
    LMP [Logistics Modernization Program] is fully deployed 
within the Army material command. In December of this year, we 
will complete the software upgrades to LMP that will update the 
financial functionality and bring that system into compliance 
with FISCAM [Federal Information System Controls Manual] 
standards.
    LMP contains the ledger for the Army working capital and 
should be for an independent audit evaluation later this year.
    Finally the Integrated Personnel Pay System-Army, IPPS-
Army, our integrated personnel and pay system of the future is 
in its beginning stages.
    The first increment is to create a consolidated data base 
that brings together the military personnel information from 
our active duty, United States Army Reserve and Army National 
Guard soldiers. This database will be the single consolidated 
source for military pay and personnel and will be delivered by 
2013, the database.
    While IPPS-Army will continue to be developed for several 
years when fully deployed, it will be able to calculate 
military pay directly.
    For my part, I bring over 40 years of continuous service to 
the United States Army both as a commissioned officer and now 
as a senior civilian for 10 years. I have had numerous staff 
jobs on the Army and Deputy G-1, Deputy G-3 and now the DCMO 
[Deputy Chief Management Officer].
    I look forward to your questions. Thank you very much.
    [The prepared statement of Mr. Lewis can be found in the 
Appendix on page 38.]
    Mr. Conaway. Thank you, Mr. Lewis.
    Mr. Fanning.

 STATEMENT OF ERIC FANNING, DEPUTY UNDER SECRETARY OF THE NAVY 
         AND DEPUTY CHIEF MANAGEMENT OFFICER, U.S. NAVY

    Mr. Fanning. Mr. Chairman, Congressman Andrews, members of 
the Panel, thank you for the opportunity to discuss the role of 
ERPs and supporting the Department of the Navy's efforts to 
achieve financial auditability. I am particularly honored to be 
testifying before the committee where I started my professional 
career almost 20 years ago to the day.
    Financial auditability is one of the top priorities the 
Department has set out and the Department of the Navy's 
strategic objectives signed out annually by the Secretary, the 
Commandant of the Marine Corps and the Chief of Naval 
Operations.
    Auditability is also one of the four main focus areas of 
the Department's business transformation plan which is 
administered by my office. And as Ms. Commons, our Assistant 
Secretary for Financial Management and Comptroller has already 
testified, auditability is a key part of the performance 
measures for any leader who has any role, large or small, in 
achieving this goal including my boss, the Under Secretary of 
the Navy.
    The Department of the Navy's financial improvement plan 
timeline is also in compliance with Secretary Panetta's 
directive to accelerate a validated statement of budgetary 
resources. The Department had already planned to assert its SBR 
by the end of fiscal year 2013. We are currently reviewing our 
strategy to see where we can accelerate our plan in order to 
mitigate any risk resulting from the new schedule.
    Of course we are here today to answer questions on how our 
investments in ERPs are supporting our efforts to achieve 
auditability. While the Department is committed to achieving 
auditability in a legacy environment, deployment of ERPs makes 
this goal easier to reach, more affordable and is critical to 
sustaining any audit ready environment.
    The Department has three IT efforts that contribute to 
audit readiness success. The first, Navy ERP provides improved 
financial discipline, improved accuracy with automated entry of 
key data fields and an audit trail associating users and 
electronic documents with transactions. It provides a single 
system for budgeting, funds availability, and execution across 
all major acquisition commands.
    In addition to financial controls, it results in single 
data source with common data structures, standardized processes 
and improved compliance across these commands.
    The second is our future personnel and pay solution which 
is on track to better support our financial improvement plan. 
After reset the effort in order to reprioritize the business 
problems it was developed to fix. Instead of a big bang 
solution delivering the long term future date we have reworked 
the plan to develop incremental capabilities so as to address 
our most pressing problems first.
    Financial improvements are in the highest priorities in 
this new construct and the financial management community is 
much more integrated into this effort than it was before.
    The third is the Marine Corps global combat support system. 
It is currently deployed to 7700 users and is demonstrating 
business value in several areas. For example, the time to first 
supply status, the primary measure for logistics responsiveness 
has been reduced from over 24 hours to an average of 1.5 hours.
    Additionally, order shipment times have been reduced by 
29.1 percent and maintenance repair cycle time has been reduced 
48.5 percent.
    But systems and technology alone, of course will not get us 
to clean audit statements. It is just as easy to automate bad 
processes as good ones and the work of improving our processes, 
standardizing our data and enforcing our controls is where we 
will meet success. And it is in these efforts that the DCMOs 
and the comptrollers are most closely aligned. Those goals the 
financial management community needs to accomplish in order to 
achieve financial improvement are in complete sync with the 
steps the business transformation community needs to take in 
order to make our business operations as efficient and 
effective as possible in support of the warfighter and as good 
stewards of taxpayer dollars.
    Thank you, and I look forward to your questions.
    [The prepared statement of Mr. Fanning can be found in the 
Appendix on page 47.]
    Mr. Conaway. Thank you, Mr. Fanning.
    Mr. Tillotson.

   STATEMENT OF DAVID TILLOTSON III, DEPUTY CHIEF MANAGEMENT 
                    OFFICER, U.S. AIR FORCE

    Mr. Tillotson. Thank you, Mr. Chairman, Mr. Andrews and 
members of the panel. It is a privilege to be here today to 
talk to you about the Army or pardon me, the Air Force's ERP 
systems--I will talk about the Army's systems, too--and the 
impact on our progress towards auditability and financial 
readiness.
    The implementation of the enterprise resource programs, 
which my colleagues have already discussed, is an essential 
implementation step in achieving the audit readiness goals.
    Having said that, the Air Force leadership recognizes that 
IT systems alone do not actually get us to audit readiness. We 
also have to address management challenges, process controls 
and the kind of things Mr. Chairman, you addressed in your 
opening question.
    For the Air Force in particular, that will become a very 
relevant question because as this panel is well aware, the Air 
Force schedules for achieving audit readiness tended toward the 
end of the objective period.
    So the goal that Secretary Panetta has recently set will 
cause us to fundamentally relook at our strategies going 
forward. And the result of that will be to not only consider 
what we are doing with the ERP deployments but we are going to 
have to go back and reconsider legacy remediation as well as 
increased process controls. And that work is under way as part 
of the 60-day planning cycle that the Department's--the DOD 
Comptroller has laid in place.
    I have submitted to the panel my written testimony a 
summary of the three Air Force ERPs that span financial supply 
chain logistics and human resource management, those systems 
are the Defense Enterprise and Accounting Management Systems, 
DEAMS, the Expeditionary Combat Support System, ECSS, and Air 
Force Integrated Personnel and Pay System.
    DEAMS will replace nine legacy systems. It is operational, 
at Scott Air Force Base. In its first instance, it has actually 
achieved its second end-of-year closeout, much better than I 
will report from the previous years.
    More importantly from a mission execution point of view and 
a benefits point of view it has begun to point to the kinds of 
things that that GAO has suggested we should be finding all the 
time as we improve audit controls. We have reduced our interest 
penalty payments which were in fact substantially reduced 
previously, but we have maintained that record with the new 
deployment. More importantly, we have highlighted overaged, 
unmatched disbursements and delinquent account receivable, all 
of which was good financial management practice and would 
improve cash flow within the Department so we are seeing the 
benefits at least at that base and certainly to expand that out 
to make that more significant.
    ECSS, our logistic and supply chain system, is targeted to 
underpin a wholesale transformation of our logistic supply 
chain and maintenance processes. This is a very ambitious 
project. It is scheduled to replace 240 legacy core systems and 
ranges from depot level activities, wholesale supply down 
through flight line maintenance kinds of activities.
    Having said that, we have recently undergone some 
programmatic issues with the ECSS program. We reported it to 
Congress at the beginning of the year, a change in this 
program. We have since had to address changes since that report 
because of program performance. So on a positive note, we have 
implemented the kinds of management direction that the GAO has 
suggested back in their November 2010 report for providing 
better oversight of the ERP program execution. The bad news is 
when you have bad execution then you have to actually go back 
and adjust your plans. So we are in the process of doing that.
    Bluntly, the re-plan for that is still underway, we report 
back to the Department by next month, by November. We would be 
reporting back out more publicly in the December time period 
about a way ahead for the ECSS program.
    The Integrated Personnel and Pay System will integrate 105 
personnel and pay processes. We have mapped those quite 
extensively. We are actually in the early phases of that 
program. We are in the process of generating the request for 
proposal that is due to go out here in the next 30 days or so, 
and we are anticipating a contract award on that program 
sometime in the Spring/Summer of next year. And that is on 
schedule so that is not a revised schedule, that is the current 
schedule for that program.
    It will replace ultimately nine legacy systems. Within the 
Air Force, the Chief Management Officer, the Under Secretary 
and the CFO [Chief Financial Officer] partner closely on all 
auditability goals and business transformation goals. And in 
fact at my level, I co-chair panels with Dr. Morin, our CFO, 
and recently in our audit acceleration process, it will be me 
and one of his key directors who will co-chair the acceleration 
process. So we are coupled at the hip from our point of view on 
the auditability goals.
    And I thank you for the time.
    [The prepared statement of Mr. Tillotson can be found in 
the Appendix on page 54.]
    Mr. Conaway. Thank you, Mr. Tillotson.
    Mr. Khan.

 STATEMENT OF ASIF A. KHAN, DIRECTOR, FINANCIAL MANAGEMENT AND 
          ASSURANCE, GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Khan. Thank you Mr. Chairman, Mr. Andrews, members of 
the panel, good morning. It is a pleasure to be here today to 
provide a perspective on the status of DOD's business 
modernization.
    Effective implementation of enterprise resource planning 
systems is a key in DOD's efforts to reach auditability, to be 
audit ready and to be audit ready by fiscal year 2017, and now, 
as you have discussed, to meet the interim goal of preparing an 
auditable Statement of Budgetary Resources by a new department-
wide date of 2014, as Secretary Panetta recently announced 
before the full Armed Services Committee.
    Today I will summarize three conditions holding back DOD 
from achieving its goals in ERP implementation.
    First, I will discuss the problems in scheduling and in 
estimating costs. Second, gaps in functions the systems are 
able to perform. And finally, a lack of compliance with 
standards.
    My statement today is based primarily on our prior work.
    First, scheduling and costs. In October 2010, we reported 
on 10 ERPs that DOD identified as critical in transforming its 
business operations. Our review of DOD's data found delays in 
implementation of these systems ranging from 2 to 12 years. 
Five systems had incurred cost increases totalling an estimated 
$6.9 billion.
    In our detailed analysis of four ERPs, we found that the 
development programs for these systems had omitted certain 
elements of risk analysis called for in scheduling and cost 
guidelines issued by DOD, GAO or OMB [Office of Management and 
Budget].
    The DOD IG reported in 2011 that, in estimating $2.4 
billion in \1\ costs for implementing its general ledger ERP, 
GFEBS-Army had not identified all the project's requirements 
and costs. Had they all been included, the costs might have 
been significantly higher.
---------------------------------------------------------------------------
    \1\ The written testimony did not include the word ``additional'' 
in the sentence. GAO confirmed that the word ``additional'' should be 
deleted from the transcript.
---------------------------------------------------------------------------
    Unreliable schedules can increase costs with additional 
time and rework needed before the system is fully functional. 
And as costs for ERP rise above estimates, funding is extended 
for the legacy systems that cannot yet be replaced.
    Second, gaps in functionality. We found significant gaps 
between needed ERP functions and those delivered. In November 
2010 we reported that Army's Logistics Modernization Program, 
LMP, had not fully developed the capabilities that LMP needed 
to perform certain basic logistical tasks. For example, 
maintaining accountability for ammunition.
    Officials of the Joint Munitions and Lethality Life Cycle 
Management Command told us in contrast to the systems LMP was 
slated to replace, LMP did not enable staff to record the 
shipping, receiving or transfer of ammunition to another site. 
Army, to compensate, had planned to hire 172 additional 
personnel to perform manual data entry until the software could 
be modified to perform the required functions.
    In preliminary results from an ongoing review, we also 
found problems in our Army GFEBS and Air Force's general ledger 
system, DEAMS. For example, financial personnel had to devise 
manual workarounds because of deficiencies in ERPs' ability to 
accept data directly from other systems, including two-thirds 
of the data from an invoicing and receiving system. Such manual 
workarounds are cumbersome, error-prone, expensive and 
ultimately not sustainable.
    Army and Air Force officials told us that they have plans 
to address the issues that we raised.
    Finally, lack of compliance with U.S. Standard General 
Ledger. To be efficient and effective as a financial management 
tool, an ERP must be able to process information according to 
accounting and financial reporting standards, a basic 
requirement for consistent reporting of financial information 
and the preparation of financial reports.
    But in November 2010 the DOD IG found that after more than 
10 years in development and a cost of $1.1 billion, Army's LMP 
system was not compliant with the U.S. Standard General Ledger. 
For example, the Standard General Ledger contains 11 budget 
records related to contract authority for working capital 
funds, but LMP contained only three. As such, as a result it 
was not recording all the data needed for the Statement of 
Budgetary Resources.
    With a history of slow-moving improvement programs that 
fall short of their goals, DOD now faces the additional 
challenge of responding to urgent fiscal demands and serious 
deadlines. DOD leadership has taken encouraging steps toward 
positive change. But in order for DOD to achieve its goals, it 
is critical that leadership sustain its commitment to progress 
and its involvement in oversight to ensure that capable systems 
and effective processes are established throughout the 
Department.
    Mr. Chairman, Mr. Andrews, members of the panel, this 
concludes my prepared statement. I will be happy to answer any 
questions. Thank you.
    [The prepared statement of Mr. Khan can be found in the 
Appendix on page 62.]
    Mr. Conaway. Thank you, Mr. Khan.
    We will start our questioning with Mr. Todd for 5 minutes. 
Todd? Oh, Mr. Young, excuse me. Todd?
    Mr. Young. Thank you, Mr. Chairman.
    Thank you to all of our panelists for being here this 
morning bright and early. I think we will, I am certainly 
hopeful we will have all the leadership at the highest levels 
in the Pentagon, especially with Mr. Secretary's recent 
indication that we are going to accelerate this whole process. 
And I know that that will probably be a great point of focus 
for this working group in the future trying to figure out the 
implications that has on all aspects of this larger effort. So, 
I look forward to that.
    Ms. McGrath, I know that many years of effort and millions 
of dollars were invested in an effort to put together a 
department-wide integrated personnel and payment system, and 
that that effort wasn't successful. Ultimately there were some 
complications, some challenges. And instead the military 
services pursued their own integrated personnel and payment 
systems.
    First, why did that effort fail? And then secondarily, what 
sort of lessons were learned? And how might those lessons help 
us as we move forward in developing these ERP systems?
    And after you are done, if anyone else would like to add, 
that would be welcome. Thank you.
    Ms. McGrath. So the system that you are referring to, the 
Defense Integrated Military Human Resources System, commonly 
referred to as DIMHRS, within the Department provides an 
opportunity for us to learn many lessons. And I think a lot of 
the opening statements--you have heard some of those lessons 
actually being conveyed in the opening statements.
    The challenges that were identified in DIMHRS 
implementation started with data. To Mr. Andrews' comments 
earlier, all about the understanding the authoritative source 
of the data. How clean is it? Who defines it? So, that we had 
consistency not only within the components, but across the 
defense enterprise.
    We are not standard across the defense enterprise in the 
military pay. The way we define certain things like leave, and 
it is just not standard. And so what DIMHRS was also looking to 
do is not only pay but achieve standardization of data, 
processes.
    We don't have consistent processes in this space. And so in 
order to successfully implement a solution, an IT solution, the 
fundamental aspects of both process and data had to be 
achieved. And I think that as that system, and Army was the 
first Service identified for implementation, and we learned 
through testing, that the Army had a lot of challenges in their 
data.
    And I'll say have heeded that lesson. And so the first 
aspect of their integrated purse pay solution is establishing 
the authoritative data within the Army that will feed, I will 
say the rest of the business processes. And so I would say not 
only did we learn it, but it is being applied in the Army's 
integrated purse pay solution.
    Now, governance too----
    Mr. Young. Could I stop you there just to clarify? I was a 
management consultant for a period of time, and I tend to focus 
on business process redesign because the whole ERP systems was 
an area a bit abstruse for me. But I know the two are very much 
related.
    And one challenge to adopting a department-wide system, it 
sounds like you are saying, was the difficulty of getting the 
different services, say, to recognize different pay categories 
by the same names or to change certain processes. Is that 
incorrect?
    Ms. McGrath. It is processes. Again, with good reason we 
execute differently across the military departments. And so to 
then bring all that into a single solution adds complexity and 
challenge. And so the getting a standard definition of an end-
to-end process, and there are many within an integrated purse 
pay solution because you are dealing with how do I calculate 
entitlements, to how do I pay?
    Mr. Young. Right.
    Ms. McGrath. And so it is processes across the Services. It 
is also then the governance required to actually enable those 
process definitions to happen. Cross-functionally, if you will, 
you need the personnel folks and the pay to then decide you 
know how do we come up with a single end-to-end process to 
effectively execute this business?
    Mr. Young. Okay. So, you know maybe we will talk offline 
here. I think my time is expired. But I would be interested in 
some of the lessons learned, how you are going to apply them to 
future success. So, thank you.
    [The information referred to can be found in the Appendix 
on page 99.]
    Mr. Conaway. Mr. Andrews.
    Mr. Andrews. Thank you.
    Mr. Khan, the GAO looked at the 10 ERPs. And my 
understanding is that six of them had delays ranging from 2 to 
12 years in implementation. Does that mean the other four were 
on schedule?
    Mr. Khan. Yes, sir. At least as of last year, from the 
information we were provided the other four were----
    Mr. Andrews. So, this is in the 2010 report.
    Mr. Khan. Correct. Yes.
    Mr. Andrews. And then on cost that 5 of the 10 were 
generating cost overruns, aggregating the $6.9 billion.
    Mr. Khan. That is correct.
    Mr. Andrews. Does that mean the other five were within 
budget?
    Mr. Khan. Well, we didn't have information for the others.
    Mr. Andrews. So, we are not sure about that?
    Mr. Khan. We are not sure about those ones.
    Mr. Andrews. Okay.
    I just want to look at GFEBS for a minute. Mr. Lewis, I am 
not picking on GFEBS, but there is frankly more data about it. 
So, I just want to kind of walk through this.
    The history of GFEBS is that it starts in 2004, right, Mr. 
Khan?
    Mr. Khan. Correct.
    Mr. Andrews. When was it originally supposed to be fully 
fieldable and implemented? Mr. Lewis, do you know? I know you 
weren't there to--believe me, I understand you walked into this 
story in the middle and not the beginning, so I get that. But 
when was it supposed to be done?
    Mr. Lewis. I don't know that date. I do know it was some 
years before that.
    Mr. Andrews. Before now. It started in 2004, right?
    Mr. Lewis. Right.
    Mr. Andrews. That is when the--okay. Mr. Khan, do you know? 
Maybe if you just supplement the record for us.
    Mr. Khan. I will do that.
    [The information referred to can be found in the Appendix 
on page 99.]
    Mr. Andrews. How much of the $6.9 billion in cost overruns 
is attributable to the GFEBS?
    Mr. Khan. That was one of the systems where we didn't have 
data, the cost overrun data for GFEBS at that point in time.
    Mr. Andrews. Okay.
    Mr. Khan. That doesn't mean that there aren't any cost 
overruns----
    Mr. Andrews. Well, let's look at the projection. If I 
understand this correctly, that the GAO report says that there 
is an estimate of a $2.4 billion cost to finish the program----
    Mr. Khan. Correct.
    Mr. Andrews. But you have some doubts about whether that is 
accurate. What is the cause of those doubts?
    Mr. Khan. Because not all the aspects what goes into 
building up a cost were considered when those estimates were 
developed. And I am reporting this information per the--what 
the IG had reported earlier on this year.
    Mr. Andrews. If you had to give a professional judgment as 
to what you think the cost will turn out to be, you think it is 
higher than 2.4?
    Mr. Khan. I would imagine so, just based on some of the 
problems that I have highlighted in my oral statement.
    Mr. Andrews. Do you have an opinion about how much higher 
it is going to be?
    Mr. Khan. I would not guess at this point in time.
    Mr. Andrews. When are you next scheduled to go in and 
examine that program?
    Mr. Khan. As part of our ongoing work we continue to look 
at these systems. We will be following up on our prior 
recommendations.
    Mr. Andrews. Now, Mr. Lewis, as someone who served both in 
uniform and the civilian sector, thank you. I would be 
interested, if we could wind the clock back to before GFEBS got 
started, knowing what you know about where we are now in terms 
of delay and potential cost overruns, how would you do it 
differently? If you were working with a blank slate of paper--
sheet of paper, excuse me, and could take us from the beginning 
of this idea, this enterprise system, where we are now, what 
would you do differently?
    Mr. Lewis. Mr. Andrews, thank you for that question. With 
these systems, as all systems, it has been alluded to and 
referred to in some of the statements here this morning 
starting with a good requirement. You have to get your 
requirements down and what do you want that system to do.
    Mr. Andrews. In this case did we--was the requirement 
overinclusive, underinclusive? What did we do wrong on the 
requirement in this case?
    Mr. Lewis. Anecdotal--this conversation--on paper, but we 
didn't have all the requirements, all the interfaces. Remember, 
our ERPs in the Army were all started at a different time, 
mainly for functional purposes. And the good news is that the 
three of them are SAP-based and so now----
    Mr. Andrews. So we were underinclusive in our requirement 
process? We didn't ask for all the stuff that we needed.
    Mr. Khan, is that part of the reason we have the present 
problems that you observed about this manual entry of data that 
I read about, which seems to be--must be an enormous hassle for 
the men and women who work--is that the reason why we have that 
problem do you think?
    Mr. Khan. I mean that is part of the issue that we had 
highlighted, that the requirements up-front have not been 
correctly ascertained. So once the development progresses, 
additional requirements come to light.
    Mr. Andrews. Now, Mr. Lewis, this is not a rhetorical 
question, but it--why do you think we got the requirements 
wrong? How did we mess that up?
    Mr. Lewis. Well these systems, as you know, are very 
complex and nobody has a--you know, all the knowledge on this 
and they are incrementally developed. And as we rolled them 
out, you know, we got--thank goodness we got most of it right, 
but there are that around the fringes that everybody talks here 
and we just have to pull those back in as we go along.
    And things grow over time. Technology changed over time----
    Mr. Andrews. Yes.
    Mr. Lewis [continuing]. So the more----
    Mr. Andrews. My time has expired. I will just mention to 
the chairman that the work that we have done together on 
procurement, that this is an echo what we are hearing this 
morning that--that the good work the GAO has done on cost 
overruns in major weapons systems generally that--in my view 
the main part of that story is getting the requirements wrong 
consistently.
    And you know, we all blame the contractors and sometimes 
they deserve it. But sometimes we need to blame ourselves 
because we keep changing the requirements on people and it 
tends to create these cost overruns so I--if I could do one--I 
will answer my own question--if I could do one thing in this 
area, it would be to figure out how we could all get the 
requirements consistent and right more often in this process. I 
think it would help us. Thank you.
    Mr. Conaway. Thank the gentleman.
    Mr. Rigell, 5 minutes.
    Mr. Rigell. Good morning and welcome to everyone. Thank you 
Mr. Chairman for holding the hearing and good to see my 
colleagues this morning. It is a very, very big topic and some 
of my question is more to help me just simply understand the 
issue as much as it is to maybe provide guidance here. But Ms. 
McGrath, could you help me to understand, if we had for example 
a matrix chart and on the vertical column was the different 
functions.
    For example, transportation, supply, maintenance, 
engineering, payroll and then across the top of the matrix was 
the different Services, could you tell me where there would be 
alignment. For example on compensation, is there a common 
vendor? Have we tried to seek a common vendor to help with 
compensation almost specialized in that? Or is the work of 
these ERPs and our vendors more by service and--I am trying to 
understand the degree to which the DOD has sought commonality 
between different functions and vendors.
    Ms. McGrath. So, I think we are more trying to define 
common standards across the enterprise and then acquire 
solutions that will help enable implementation of the common 
standard vice, buying one solution that has standards embedded 
in it that we then all use. Because then that allows for 
competition, certainly if the Department is defining its 
business standards and processes and then publishing----
    Mr. Rigell. Okay, so we----
    Ms. McGrath [continuing]. Vendors can----
    Mr. Rigell. And it makes sense as big as DOD is that we 
have more than--certainly more than one vendor helping us with 
pay issues for example across different Services. But then that 
leads to, to what degree are we seeking like best practices 
from one, if we are having real success. This company has 
really got this down, they are doing really well. Do you all 
meet together on a regular basis to say, ``Hey this company X 
is doing a great job for us. They are on track. They have got a 
low cost solution.''
    Ms. McGrath. Certainly we use past performance and data in 
awarding contracts, but I think that the lessons learned in 
sharing, especially in these ERP--big ERP programs is we do 
have venues where we bring all of the ERP program managers 
together to identify lessons learned in terms of 
implementation. There are network issues. There are standard 
issues. We certainly understand the measures we are putting in 
place.
    Not only with the vendor but with ourselves in terms of, 
you know, best practices and lessons learned. We are adopting 
those, embedding them into the oversight, not necessarily 
looking at one particular vendor's performance.
    Mr. Rigell. Well, I have been impressed by the--really the 
quality of the people that I have interacted with in my short 
time here. And I am sure you are doing that. I have learned in 
life that you really can't over communicate and getting people 
together, sharing best practices is just a terrific way to 
improve performance, so I just encourage you to pursue that.
    In the 2 minutes that I have left, Mr. Khan I wanted to 
shift over to you sir and to ask you--I wanted to follow up on 
some comments that were made by the Ranking Member, Congressman 
Andrews, and--related to some of the ERPs are on track, a few 
aren't. Let's talk about--I wish I had time to talk about the 
successes. Let's talk about the ones that are having trouble.
    Is there any commonality among those? Is there a company 
that is giving us a bumpier time than others? Could you explain 
that to us? Give us a--just a quick overview?
    Mr. Khan. The commonality primarily is in requirements--
requirements management, collecting requirements, up-fronts and 
how those requirements are actually developed into the system 
itself. So that is the----
    Mr. Rigell. So it is more our side--it is more the 
government is that--I want to make sure I understand your point 
here. Is it more that we have not been clear? It is almost like 
a change order on a house. You start remodeling your house and 
the builder gives you a certain date and you go, no I really 
want to do this and you start doing change orders and you are 
off-track.
    Mr. Khan. That is correct, but it is hard to distinguish 
whether it is the government's issue or the contractor issue 
because for the most part, teams usually are integrated to be 
able to collect this information. I was just answering your 
question that the--one of the major issues that we--when we 
were doing our work we found was the up-front requirement 
collection was a problem.
    Mr. Rigell. Okay. Well in the 20 or so seconds that I have 
left, I just would encourage all of you to, you know, to reward 
those who are doing good work and to hold accountable those who 
are not. And that has to be brought into our procurement 
process, evaluation of vendors and I--as time goes on I would 
like to--for us to explore and see and identify those companies 
that are not performing as well and understand why.
    Thank you. I yield back.
    Mr. Conaway. Thank you gentleman.
    Mr. Ryan, 5 minutes.
    Mr. Ryan. Thank you Mr. Chairman. I just kind of want to 
piggy back a little bit on where the discussion just went as 
far as it sounds like the crux of it is incentives or can be 
incentives. Whether you are talking about the scheduling and 
the cost like Mr. Khan was talking about, or the lack of 
compliance. Can you help us identify some carrots and possibly 
some sticks that we need to look at in order to expedite this?
    Especially when you are talking about the scheduling and 
the cost. You know, as we are moving into austerity I guess and 
cuts within the military, and every other program across the 
board, I think it is important for us to know early on what the 
exact numbers are. So, Mr. Khan can you give us some advice 
from your vantage point going through this with a fine tooth 
comb on what some carrots would be and what some possible 
sticks would be?
    And then Ms. McGrath, too, if you could comment on that?
    Mr. Khan. Yes, sir. One of the key aspects is additional 
oversight, especially as far as investment management is 
concerned to make sure that a particular project, especially 
ERP development doesn't go forward, until they are meeting the 
initial requirements, or the requirements of a particular 
phase. That is where government and oversight becomes critical.
    Mr. Ryan. What would the numbers look like? What 
investments would we have to make into that kind of oversight? 
How many people would we need for example?
    Mr. Khan. I mean that is hard for me to say. I think we 
have got the structure in place now with the CMOs at the 
various components itself. There is a government structure in 
place under the leadership of the DCMO who are providing this 
oversight at this point in time. Other than that, I think as we 
go along it will be--I mean just the results will speak for 
themselves whether the projects are moving forward and what the 
results are.
    Mr. Ryan. So we have the manpower in place to be able to do 
this?
    Mr. Khan. I cannot answer that question. We haven't looked 
into that.
    Mr. Ryan. If anyone else on the panel would like to comment 
on that?
    Ms. McGrath. I would be happy to. So I think the shift over 
the last couple of years, in particular with all the tools that 
Congress has given us in terms of oversight and architecture 
development, investment review boards, the chief management 
officer, legislation and the business process re-engineering, 
have all helped in terms of enabling better execution of these 
programs.
    Another shift that has happened is that previously it was 
just the acquisition team, the acquisition oversight, the 
service acquisition or component acquisition executives looking 
at the, you know, is the program doing cost, schedule and 
performance. With the introduction of the CMOs and in 
particular my role with the acquisition oversight for these 
programs coupled with the investment reviews, you actually have 
everybody at the table who needs to be at the table to 
understand the impact of this particular--a particular 
investment.
    So you have got all the functional areas represented. You 
have the corporate business, you know, the folks at the table 
here represented to say, you know, how does this thing fit into 
my broader business conversations? So I actually do think if 
you looked over the last 2 years as opposed to the last 10, I 
would hope that you would see actually more implementation of 
systems, delivering capability closer to on time and at cost 
than they had been previously.
    Because we better understand, you know, the implementation 
aspects from a much broader perspective. Another lesson learned 
frankly, to get back to a couple of questions is the 
requirements piece. I mean that is the thing that bites us 
every time. And part of what we have learned is we overrequire. 
We think this is the only time we are ever going to have a shot 
at putting all the requirements in so the programs are big and 
complex.
    And part of the business capability's lifecycle is a 
different acquisition approach, if you will, to IT and business 
is to say, okay we know you want sort of this big thing, but 
can you chunk it such that we can, you know, talk about it in 
smaller terms and deliver it in smaller--understanding that it 
is incomplete when we first deliver it, but it is part of the 
broader plan.
    And I think part of the better buying power initiatives 
that AT&L [Acquisition, Technology and Logistics] and Dr. 
Carter have been promoting and part of the broader business is 
to figure out, you know, how do we structure the contracts 
using the right balance of incentive fees and firm fixed price 
versus time materials? I mean, we sometimes issue a firm fixed 
price contract when the requirements aren't yet baked enough to 
really communicate to the vendor what it is we want.
    And so I think it is a balance of I am going to say all 
those things that we are really embedding into this entire 
conversation. And so you see--you will see changes in the way 
that some of the contracts--ECSS is actually a very good 
example from a contracting perspective.
    And so yes, I do think we have the oversight. And I would 
hope that if we did look from a shorter term that progress 
would be much, much better than it has been from a 10-year 
cycle. And I do think that it is every aspect that is required 
to make it better.
    Mr. Ryan. Thank you.
    Thank you, Mr. Chairman.
    Mr. Conaway. Thank the gentleman. Again, thank you 
everybody for coming this morning. I want to make sure we try 
to get as much of everybody as we can. Talk about a statement.
    Mr. Lewis, the GFEBS and the rollout, one of the things 
that we have been told is that legacy data, or much of the data 
from the legacy systems won't necessarily be converted into the 
GFEBS systems for some period of time. Can you help us 
understand the--is that--obviously a planned decision. But from 
a manager's standpoint, a cost standpoint is that the most 
effective way to manage that transition over time?
    Mr. Lewis. Mr. Chairman, thank you. We would like that 
transition, as this was the first year that we closed out with 
using GFEBS. We would like all that to be seamless and 
electronic, but there are some interfaces that need a little 
extra help, that need some manpower to make that data move 
over. We have got eyes on target.
    That is one of those things, as Ms. McGrath said, large, 
complex systems, as we get experience using these systems we 
got to fix that. But yes, we would like to have it all be 
inputted into GFEBS and be resident in there, be manipulated in 
the system. And that also----
    Mr. Conaway. But are you tracking--is there enough pressure 
from the cost of maintaining legacy systems that are extra to 
the system to make sure that you do in fact move everything as 
expeditiously as possible into GFEBS?
    Mr. Lewis. Oh, most affirmative. In an era here of 
declining resources, everybody is after legacy systems, lots of 
people, budgeters, programmers, those of us in the functional 
management types, and the people that run the systems. The 
pressure is on there. We have them scheduled. As soon as they 
are certified, the system certified they can handle it, we will 
take the legacy and shut it down.
    Mr. Conaway. All right.
    Mr. Tillotson, the stop order for the--your ECSS program, 
especially your comments I was going to ask a question relative 
to that, but apparently you are going to have more information 
on that next month. One of the carrots in this thing is savings 
associated with doing things better, doing things quicker and 
faster. And you have got an estimate out there for almost $3 
billion of savings over a 10-year period once these things are 
implemented.
    Present value of those savings get smaller and smaller as 
that 10-year window gets beyond the 2017 date. Can you visit 
with us about where you are in terms of the 2014 date? Could 
you get there by 2017?
    Mr. Tillotson. So, from a broad Air Force point of view, 
the 2017 date, as Dr. Morin reported I think to this panel some 
weeks ago, is a moderate risk state for the Air Force as a 
whole for the total audit readiness condition. For the 
statement of budgetary resource we are aggressively looking now 
at what changes we need to make.
    As I indicated in my opening remarks, because of ECSS 
program performance even before the 2014 mandate from Secretary 
Panetta we were having to reconsider a mix of legacy process 
and ECSS deployment in order to stay on track to meet the audit 
goal, even at 2017. So, we will be doing more of that as we go 
forward.
    So, monthly we are looking at all of the above, and we 
actually have done a very detailed deep dive on this.
    Mr. Conaway. Okay. Thanks, Mr. Tillotson.
    Ms. McGrath, given the things that are going on with the 
Air Force, where in that broad array of organization chart, is 
the Office of the Secretary responsibility for watching what 
the Air Force is doing and understanding what they are--
watching what the Army is doing with respect to that. Is that 
your office that will be monitoring and helping us with the 
oversight? Where does that oversight lie within your system?
    Ms. McGrath. With the acquisition--milestone decision 
authority for all but the logistic systems resides with me. And 
then for the logistic systems like ECSS and some of the GCSSs 
that you have heard today, they are within AT&L. And then I run 
the subordinate body. But all of them come into the Investment 
Review Board. And so it is both the Investment Review Board and 
the acquisition oversight. Again, most of them are with me, the 
logistic systems are with AT&L.
    Mr. Conaway. Okay.
    We have heard across the panels at some of these hearings 
that performance evaluations next year will be somewhat driven 
by success against getting this done. Is that--is a similar--we 
are looking forward to seeing how that works. I wanted to hear 
your comments about what your perspective is on that. But is 
the responsibility for watching, for the lack of a better 
phrase, Mr. Tillotson and Mr. Lewis' efforts is that a 
performance requirement with whoever that performance review, 
whoever that Investment Review Board is. Because the point is, 
if everybody is in charge of something then nobody is in charge 
of it. And so comment first on the individual performance 
review standards particular within the system on getting the 
details, but also on the folks who are watching it to make sure 
that they are held accountable for their role as well.
    Ms. McGrath. I think as we testified when Mr. Hale and I 
were here last time we ensure that audit readiness is part of 
the strategy of the Department. It is in the strategic 
management plan that we just recently released. Also in the 
Department's organizational guidance, which establishes the 
priorities for the Departments, which are cascaded into 
performance plans, which is why it is important.
    So, we have measures from a strategic perspective that 
cascade throughout the Department. And then we report on those 
on a quarterly basis. How is it going with regard to, you know, 
the Statement of Budgetary Resources or some of the milestones 
identified in the FIAR plan. And so institutionally we have 
those baked in, which I think is extremely important.
    Also, we are looking at cost schedule and performance of 
these ERPs, and also how they achieve the business goals. That 
is done through I think multiple governance bodies, not the 
least of which is the FIAR governance body that both Mr. Hale 
and I co-chair, and also from an acquisition perspective. Some 
of the things I just mentioned, do we have the right contract 
strategy and those kinds of things. And so it is both the 
investment review, acquisition oversight and the overarching 
total performance.
    Mr. Conaway. Okay.
    Ms. McGrath. Your face says I didn't answer your question.
    Mr. Conaway. Well, yes. Part of it is just as you mentioned 
baked into the system. If you looked at the organization chart, 
and we have had this conversation before with others, there is 
nobody in charge. But the whole package, other than Mr. 
Panetta.
    I guess we will just have to hold Mr. Panetta in charge 
because if you look at the way it is bifurcated, you have got 
the audit responsibility going this direction. You have got 
ERPs under a different group of folks. And so I am having a 
hard time figuring out who I need to hold accountable other 
than Mr. Panetta to make this thing work. And so, there are a 
lot of folks who have a little piece of a bunch of it.
    Ms. McGrath. Well, I think that is both part of the 
challenge and the opportunity is that achieving a clean audit 
is not just one person or one organization or one functional 
area's responsibility. It really does take the Department----
    Mr. Conaway. I understand that part. But--anyway.
    We have got--left. Do you want to do another round, Mr. 
Andrews?
    Mr. Andrews. I do. More than a question I have a 
suggestion. And that would be before the full committee begins 
its deliberations on next year's authorization bill, we should 
get this year's done first. But before we being our 
deliberations on next year's authorization bill, I think it 
would be helpful if the GAO would revisit its review of these 
10 systems so we would have in front of us----
    Mr. Conaway. Mr. Khan, you didn't actually--you said you 
would do it. Is there something on the books right now to 
update your November 10 analysis?
    Mr. Khan. No, not specifically. What I meant was that as 
part of our recommendation follow up we do----
    Mr. Conaway. I understand. But you don't have a----
    Mr. Khan. I do not, no.
    Mr. Andrews. I would like us to be in a position when the 
full committee considers the fiscal year 2013 authorization 
bill that we have the current state of play with these 10 
systems as to where they are, where they are going so that any 
resources we need to add to try to make them succeed or 
subtract because they are not succeeding, we could make an 
intelligent decision about that.
    I mean, I come back to the beginning of this that I think 
Secretary McGrath said this. This is the glue that holds this 
whole thing together. And you know we have some problems here.
    And I think in order for us to assess how to best address 
those problems I would like to think the committee would 
benefit from a current state of affairs, as stated by the GAO, 
before we get to the decisionmaking phase in next year's bill. 
So, that would be my suggestion to the chairman if we could 
accomplish that.
    Mr. Conaway. All right----
    Thank you for coming this morning.
    You know, part of the oversight role is to not second-guess 
and Monday morning quarterback too much. It is clear that you 
are looking at the personnel system for the entire Department 
of Defense. You know in hindsight that might have been clearly 
too big of a project to try to make happen and busting it up 
into smaller pieces makes more sense. And we are doing those 
kinds of things. And so you are looking at the way--to see 
where the system--Department got to decide let's just do one.
    You know, it is kind of intuitive to start with. But making 
it a requirement that the Standard General Ledger be a piece of 
the--be one of the things that comes out of it, I mean in the 
comments that Mr. Khan made that the logistics management 
piece, the LMP thing didn't meet the Standard General Ledger 
issues on the front end. I don't know how you missed that one.
    So, we are going to try--you know, obviously that is water 
under the bridge and our focus really is from where we are 
today going forward. Unless there are some lessons to be 
learned about things that we have done.
    But I appreciate the panel being here this morning. You 
guys do great work on behalf of the taxpayers of our country. 
And you have got a tough, tough job to make this all happen. 
And our role is to, again, try to not Monday morning 
quarterback too much, but at least try to help us understand so 
that we can communicate back to the folks who pay all our 
salaries that you are doing the best job you can with the 
resources you have got.
    And so if there are no other comments, again, thank you 
very much for being here this morning.
    This hearing is adjourned.
    [Whereupon, at 9:00 a.m., the panel was adjourned.]
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                            A P P E N D I X

                            October 27, 2011

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              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                            October 27, 2011

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                  Statement of Hon. K. Michael Conaway

Chairman, Panel on Defense Financial Management and Auditability Reform

                               Hearing on

 DOD's Enterprise Resource Planning (ERP) System Implementation Efforts

                            October 27, 2011

    I'd like to welcome everyone to today's hearing on DOD's 
Enterprise Resource Planning (ERP) System Implementation 
Efforts. In all of our previous hearings, regardless of the 
topic, the Enterprise Resource Planning systems were always an 
integral part of the discussion, whether the discussion 
centered around the skills needed within the financial 
management workforce, accountability of assets, or the controls 
needed to prevent potential anti-deficiency act violations. So, 
it is fitting that the Panel hold a separate hearing on DOD's 
Enterprise Resource Planning systems. Today, we will examine 
the scope of the ERP efforts, the status of the implementation 
of the ERPs, and their ability to improve DOD's financial 
management.
    According to DOD, the successful implementation of the ERPs 
is a key element to addressing long-standing weaknesses in 
financial management and achieving audit readiness. Yet, GAO 
has reported over the years ``that the Department has not 
effectively employed acquisition management controls to help 
ensure the ERPs deliver the promised capabilities on time and 
within budget.'' GAO has also reported that delays in the 
successful implementation of ERPs have extended the use of 
existing systems and continued the funding of these legacy 
systems longer than planned. The DOD Office of Inspector 
General noted in its testimony before the Panel on September 
22, 2011, that ``The development, implementation and 
effectiveness of these ERP systems are questionable at this 
point.'' With billions of taxpayer dollars as stake, it is 
critical that DOD take the necessary actions to ensure that the 
ERPs are successfully implemented.
    The Secretary of Defense directed the Department to move up 
the audit readiness date of the Statement of Budgetary 
Resources (SBR) from 2017 to 2014. However, certain of the ERPs 
are not scheduled to be fully deployed until near or during 
2017. In order to meet 2014, will the Department move up ERP 
deployment dates, make enhancements to existing legacy systems, 
improve manual controls, or some combination of the three? 
Also, will DOD need additional resources for this effort? We 
will be interested in getting some insight today on DOD's 
approach to accomplishing this goal.
    One of the key responsibilities of the DOD Deputy CMO and 
Military Department CMOs (and their respective deputies) is to 
support business system modernization efforts in a manner that 
synchronizes these efforts with the financial improvement 
activities of the reporting entities. This becomes all the more 
important as DOD works towards achieving audit readiness of the 
SBR by 2014, while also keeping on track to achieve 
auditability on the full set of financial statements by 2017.
    I would like to thank our witnesses in advance for their 
testimony and agreeing to be with us this morning. We have with 
us today:

     LThe Honorable Elizabeth McGrath, Deputy Chief 
Management Officer, U.S. Department of Defense;

     LMr. Mark Lewis, Deputy Chief Management Officer, 
United States Army;

     LMr. Eric Fanning, Deputy Under Secretary of the 
Navy and Deputy Chief Management Officer, United States Navy;

     LMr. David Tillotson III, Deputy Chief Management 
Officer, United States Air Force; and

     LMr. Asif A. Khan, Director, Financial Management 
and Assurance, Government Accountability Office.

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                            October 27, 2011

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              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                            October 27, 2011

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              RESPONSE TO QUESTION SUBMITTED BY MR. YOUNG

    Ms. McGrath. The Department is actively applying its lessons 
learned to the entire lifecycle of business systems. As a result of the 
DIMHRS experience, we have implemented and reinforced several key 
strategies to enable ERP integration.
    First, business processes must be consistently applied and data 
must be consistently defined so the Department can have the visibility 
to make effective, informed decisions. We continue to improve business 
system interoperability by sufficiently defining the business and 
solution architectures using a standard methodology and with tools 
based on open standards. Our Enterprise Information Web (EIW) 
capability, for example, gives decision-makers enterprise visibility 
and access to financial, personnel and asset data across the DOD 
enterprise and its domains to support planning and policy development. 
The EIW's semantically-based technology aggregates data using 
established standards, regardless of code values or format, to support 
analysis and decisions in a near real-time environment.
    Second, the Department has instituted formal governance bodies to 
enforce standards compliance. Three- and Two-Star level governing 
councils were dedicated to resolving post-DIMHRS transition issues, 
establishing rules of engagement for enterprise-level system 
implementation, and proactively addressing emerging or potential 
concerns. Finally, the Department remains committed to a transparent 
and collaborative approach to communication. Both during and following 
DIMHRS, the Department sought to make decisions openly and in 
partnership with stakeholders and to facilitate expectation management. 
Cross-Service and Department-wide teams at tiered levels have eased 
collaboration by fostering an open forum for information sharing. The 
recognition of consistent standards and data as the key to business 
system interoperability, substantiated by governance and transparency, 
has enabled the Department to use the lessons of DIMHRS as a platform 
for successful ERP implementation. [See page 12.]
                                 ______
                                 
             RESPONSE TO QUESTION SUBMITTED BY MR. ANDREWS

    Mr. Khan. As discussed in our October 2010 report the originally 
scheduled fiscal year for full deployment and the actual or latest 
estimated fiscal year for full deployment were 2011, in both cases. As 
noted in the report, the information was provided by the GFEBS program 
management office. Subsequently, the Army's Deputy Chief Management 
Officer's October 27, 2011 testimony before the Panel stated that GFEBS 
will be fully fielded to all approved users by July 1, 2012. [See page 
13.]
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              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                            October 27, 2011

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

      
                   QUESTIONS SUBMITTED BY MR. CONAWAY

    Mr. Conaway. Please provide the number of ``legacy'' systems 
currently in use to support business functions (e.g., financial 
management, acquisitions, logistics, personnel, etc) for each Service 
and the Fourth Estate. For each of the ERPs being implemented, please 
provide the number of legacy systems that will be retired and the 
estimated cost savings or cost avoidance once each of these ERPs are 
implemented. Furthermore, provide an explanation for the reasoning for 
not retiring the systems that will not be retired once the ERPs are 
implemented.
    Ms. McGrath. [The information was not available at the time of 
printing.]
    Mr. Conaway. At what level are decisions made to retire/maintain 
legacy systems and approve ERP customizations?
    Ms. McGrath. [The information was not available at the time of 
printing.]
    Mr. Conaway. Historically, the quality and integrity of the data 
undergoing conversion is a major contributor to schedule slippages and 
cost increases for ERP systems. What lessons are you applying from past 
problems with data conversion and data cleanliness to improve future 
outcomes for ERP deployments?
    Ms. McGrath. The lessons learned from the Department's early 
challenges with data conversion have been incorporated into the 
document ``ERP Data conversion--Best Practices'' that has been made 
available in the Department's Enterprise Integration Toolkit, which is 
posted on the defense acquisition community's internal collaboration 
website. [This document can be found on page 83.]
    Mr. Conaway. As the ERPs are implemented, what type of training is 
each of the users receiving? Is this training incorporated into broader 
training explaining the importance of good financial management?
    Ms. McGrath. Each of our ERP programs is delivering a diverse set 
of training courses to educate the workforce in preparation for 
implementation. The types of training that are offered include, 
Computer Based Training (CBT), Web based training, Train the Trainer, 
Instructor Led Training (ILT), and Classroom/School-house Training. 
These classes are coupled with extensive hands-on exposure in the 
testing and training environment before the users are allowed in the 
production environment. Additionally, in-depth assistance is generally 
offered at go-live for a period of 30 to 60 days at each site by expert 
trainers and super-users and refresher training is offered on a 
recurring basis or as new capabilities are introduced.
    While training on specific ERP systems has generally not been 
incorporated into the Department's overarching financial management 
training courses, the importance of strong technology controls and the 
role of the ERPs in our overall audit environment have been 
incorporated.

    Mr. Conaway. Please provide the number of ``legacy'' systems 
currently in use to support business functions (e.g., financial 
management, acquisitions, logistics, personnel, etc) for each Service 
and the Fourth Estate. For each of the ERPs being implemented, please 
provide the number of legacy systems that will be retired and the 
estimated cost savings or cost avoidance once each of these ERPs are 
implemented. Furthermore, provide an explanation for the reasoning for 
not retiring the systems that will not be retired once the ERPs are 
implemented.
    Mr. Lewis. The Army uses 720 business systems currently to support 
business functions. The Army is developing/modernizing four ERPs. The 
development of these ERPs will allow the Army to retire 100 systems and 
partially subsume 39 others.
    Overall, cost savings/avoidance is estimated in excess of $382 
million. This does not include any cost savings/avoidance attributable 
to IPPS-A fielding, because that cost position is still under review. 
The following are numbers of systems that will be retired or subsumed 
associated with each ERP and estimated cost savings based upon their 
business cases:

          General Funds Enterprise Business System (GFEBS) 
        fielding has resulted in 13 legacy systems being retired and an 
        additional six systems being partially subsumed. Upon 
        completion of GFEBS fielding, an additional 55 legacy systems 
        will be retired and 39 systems partially subsumed. The cost 
        savings/avoidance associated with GFEBS implementation is 
        estimated to be $60 million.

          Logistics Modernization Program (LMP) fielding will 
        result in two legacy systems being retired. The cost saving/
        avoidance is estimated to be $313 million.

          Global Combat Support System-Army (GCSS-A) fielding 
        will result in seven legacy systems being retired. The cost 
        savings/avoidance is estimated to be $9 million.

          Integrated Personnel and Pay System-Army (IPPS-A) 
        fielding will result in 56 legacy systems being retired. The 
        cost savings/avoidance has not yet been finalized, pending the 
        completion/approval of the cost-benefit analysis.

    Some systems will not be retired because they are non-Army systems 
that support other DOD Organizations, while some will continue to 
provide some functionality that is not provided by the ERP solutions. 
Others will be partially sunset because the native functionality will 
be performed by the ERP.
    Mr. Conaway. At what level are decisions made to retire/maintain 
legacy systems and approve ERP customizations?
    Mr. Lewis. Within the Army, the Secretary of the Army provides 
oversight, but has delegated responsibility for retiring/maintaining 
business systems management and approving customizations to the 
functional proponent, HQDA 3 Star or higher. This is consistent with 
statutory language found in 10 USC 2222 and DOD implementation 
guidance. Given this authority, the functional proponent decides which 
legacy systems to retire or sustain to support their business function. 
The functional proponent incorporates senior level guidance provided 
during the PPBE cycle, the capabilities required to execute their Title 
10 responsibilities, cost-benefit analysis, and other Army initiatives 
into their decision-making process.
    During the systems review process, the functional requirements are 
reviewed at proponent, Army and OSD levels for Major Automated 
Information Systems (MAIS). As part of the acquisition review and 
approval for MAIS systems, the cost benefit analysis for investment in 
an ERP includes the benefits and savings associated with legacy 
business systems that are being partially or fully subsumed by the new 
system.
    The Army also established the Business System Information 
Technology Executive Steering Group (BSIT) in February 2011, to govern 
enterprise resource planning (ERP) and other business systems using a 
structure that fully reflects enterprise considerations and employs 
business process analysis and systems portfolio management principles. 
The governance structure will ensure end-to-end business processes 
support mission requirements. The BSIT forums will review existing 
governance forums and authorities for IT requirements, resourcing, 
technical standards and acquisition and make recommendations to the 
Chief Management Officer of how to improve and streamline IT 
governance.
    Mr. Conaway. Historically, the quality and integrity of the data 
undergoing conversion is a major contributor to schedule slippages and 
cost increases for ERP systems. What lessons are you applying from past 
problems with data conversion and data cleanliness to improve future 
outcomes for ERP deployments?
    Mr. Lewis. The key lesson learned regarding the quality and 
integrity of the data undergoing conversion is to ensure that extensive 
planning is completed early enough in the program development to 
accurately migrate and cleanse data.
    The lessons learned from the initial release of LMP taught us a 
great deal about data conversion/data cleansing, which we have 
incorporated into all our ERP efforts. It is critical to have accurate 
data prior to the fielding of ERP systems to ensure reliability. The 
Army's Enterprise Data Management Office, a component of the US Army 
Logistics Support Agency, are applying lessons learned from LMP 
deployments to assist with cleansing legacy logistics systems' data in 
support of GCSS-Army fielding development.
    In addition, the Army has incorporated Army Enterprise System 
Integration Program (AESIP) into the GCSS-Army program to serve as a 
data broker between ERP and non-ERP logistics systems. AESIP provides a 
degree of quality assurance for data and translates the data into the 
common format.
    The financial audit activities supporting our 2014 and 2017 
auditability goals will provide assurances that GFEBS is an accurate 
and reliable source for financial information. IPPS-Army will 
eventually consolidate all components into one database, replacing 
numerous legacy systems, and will consolidate personnel and pay. 
Ensuring data quality and integrity data is the primary goal of 
Increment 1. For that reason, the Army has placed the data 
consolidation at the beginning of the acquisition lifecycle for IPPS-
Army.
    Mr. Conaway. In your testimony, there is no mention of the Army 
Enterprise System Integration Program (AESIP) system. What is it, and 
why is it important to the Army's overall strategy for ERP 
implementation?
    Mr. Lewis. AESIP integrates business processes and systems by 
serving as the Enterprise hub for the Army's logistics and financial 
ERP business systems. It enables integration by linking business 
processes and data across existing IT systems. This integration 
optimizes business processes and supports Enterprise-level information 
requirements. AESIP has successfully delivered a Web-based solution for 
the creation and management of customer and vendor master data and 
implemented an optimized messaging and hub services capability.
    AESIP has been operational since 2006 delivering customer, vendor, 
and material master data to systems across the Army and to the Defense 
Logistics Agency--this includes the data flowing to legacy systems 
currently being used in Iraq and Afghanistan. GCSS-Army and AESIP 
program costs are evaluated and managed together (AESIP is part of 
GCSS-Army). These costs have been validated by the Office of the 
Secretary of Defense, Cost Analysis and Program Evaluation (CAPE) 
division. Additionally, the Deputy Assistant Secretary of the Army for 
Cost and Economics has approved these anticipated life cycle costs and 
associated benefits.
    The major systems supported by AESIP are: Global Combat Support 
System-Army (GCSS-A), the tactical logistics system; Logistics 
Modernization Program (LMP), the national logistics system; and General 
Fund Enterprise Business System (GFEBS), the Army's financial system. 
In addition, AESIP provides integration services for Non-Army systems 
and enduring non-ERP systems.
    Mr. Conaway. As the ERPs are implemented, what type of training is 
each of the users receiving? Is this training incorporated into broader 
training explaining the importance of good financial management?
    Mr. Lewis. As each ERP is fielded, training is provided at all 
levels, from the person entering data up to senior level management. 
Training consists of new equipment training (both computer based (CBT) 
and instructor led (ILT)), business process training, audit-readiness 
training, post-deployment/sustainment training and refresher training. 
The training provided is to standards and competencies demonstrating 
proper internal controls.
    The Project Manager for each of the new ERPs develops and delivers 
``new equipment training'' which is focused on how to perform tasks in 
the ERP. Functional training that focuses on end to end processes and 
job-based scenarios is also provided. A key focus of business process 
training has been on the development of cost management competencies to 
leverage the power of the ERP decision support tools. However, the 
training curriculum impacts more than just the tasks executed inside of 
the ERP systems. As a key partner in ERPs implementations, DFAS 
develops training on the business processes its employees perform which 
are impacted by the changing ERP environment. To supplement OUSD(C)'s 
audit-readiness training, the Army has also established Army specific 
audit readiness and corrective action training for Command and 
Installation-level staff. Fiscal responsibility and cost culture are 
also topics in General Officer and SES training courses.
    The Army, along with the DOD, has maintained an active professional 
development program for its Comptroller career field including civilian 
and military personnel. The Functional proponent for Financial 
Management is working closely with the Army's Soldier Support Institute 
to ensure course material provided to the financial management 
workforce incorporates the new financial management systems. Course 
materials would include, but are not limited to, use of the new ERPs, 
principles of sound financial management, principles of cost 
management, managerial accounting, etc. The context of these courses 
reinforces efforts to satisfy audit standards, but go further to 
developing a fiscally responsible workforce.
    As an example, every course in our GFEBS curriculum (except those 
focused on specific user groups, e.g., power users, Governance, Risk, 
and Compliance (GRC) approvers, Army Learning Management System (ALMS) 
training coordinators) is provided by GFEBS to the end-user. We engage 
users through workshops, CBT and ILT delivery methods, and we do not 
rely on the gaining organizations to take over the training delivery in 
order to go live on GFEBS.
    In addition to the formal training, GFEBS also provides 90 days of 
on-site, over-the shoulder post deployment assistance to help the user 
gain a confidence in their work and in use of the new system, answering 
questions and resolving issues which the end user may encounter.
    The Army Financial Management School (AFMS) Soldier Support 
Institute (SSI) plans to provide sustainment GFEBS training starting in 
FY12. GFEBS is already working with the AFMS to transition the training 
materials and support their deployment of sustainment training. In 
addition, GFEBS is also working with United States Army Financial 
Management Command (USAFMCOM) and Defense Finance and Accounting 
Service (DFAS) to ensure a complete business process transformation for 
soldiers and their roles within the system.

    Mr. Conaway. Please provide the number of ``legacy'' systems 
currently in use to support business functions (e.g., financial 
management, acquisitions, logistics, personnel, etc) for each Service 
and the Fourth Estate. For each of the ERPs being implemented, please 
provide the number of legacy systems that will be retired and the 
estimated cost savings or cost avoidance once each of these ERPs are 
implemented. Furthermore, provide an explanation for the reasoning for 
not retiring the systems that will not be retired once the ERPs are 
implemented.
    Mr. Fanning.With the roll-out of Navy ERP, there has been a 
retirement of 14 legacy systems to date, with 82 more to be retired by 
2016. This has garnered a realized cost avoidance of $116M through 
FY08-10 with an expected cumulative combined cost savings and avoidance 
of $682M through FY2016.
    The deployment of the Single Supply Solution enables projected 
inventory savings of $276M through FY2017 and expected cost avoidance 
of $456M for FY2018 through FY2023.
    As the Navy ERP has been deployed to date, some receiving commands, 
notably Naval Sea Systems Command, found it more cost effective to 
maintain a few systems whose functions were assumed by the ERP on 
reduced, maintenance levels to keep critical contract information 
available for reference versus converting that data for Navy ERP.
    In the present fiscal environment, the Department of the Navy and 
Navy leadership has decided to complete the current Navy ERP program of 
record, but to suspend any further development. Other system 
functionalities may be added to the Navy ERP at some future dates, if a 
business case supports that decision.
    GCSS-MC is the Logistics Chain Management tool for the Marine 
Corps. It is not an overarching ERP since the scope is limited to the 
Logistics Chain. There are four legacy systems that will be retired 
through GCSS-MC Increment 1 implementation after attaining Full 
Deployment in 2nd Quarter, FY13. These systems are listed as follows: 
SASSY, MIMMS, PC MIMMS, and ATLASS. The estimated cost savings or cost 
avoidance is $2M/year. Looking forward, the Marine Corps is 
adjudicating within the Expeditionary Force Development System (EFDS) 
process the potential retirement of approximately 30+ legacy systems 
identified within the Draft GCSS-MC Increment 2 Capabilities 
Development Document/Business Capabilities Lifecycle (CDD/BCL). The 
impact of this new capability on these systems still needs to be 
assessed once a viable GCSS-MC Increment 2 material solution 
(Capabilities Production Document (CPD)) is designed, developed, 
tested, approved, and implemented.
    Mr. Conaway. At what level are decisions made to retire/maintain 
legacy systems and approve ERP customizations?
    Mr. Fanning. Decisions as to what systems would be retired by Navy 
ERP were made primarily by the Resource Sponsors for Navy ERP and the 
systems in question; with input from the relevant Functional Area 
Managers.
    ERP configuration changes must be approved by the Navy ERP Senior 
Integration Board, in which the Assistant Secretary of the Navy (RDA), 
DON CIO, Deputy Under Secretary of the Navy DCMO, Deputy Assistant 
Secretaries C4I and AP, the Naval Systems Commands and other receiving 
commands (e.g., Office of Naval Research) participate.
    The decision to retire/maintain legacy systems is made by the 
Functional Advocate, Deputy Commandant, Installations and Logistics. 
The approval of ERP customizations, specifically Change Requests (CRs), 
are made by an Enterprise Configuration Control Board (E-CCB) 
established by the Functional Advocate. Chaired by I&L, the E-CCB is 
comprised of members from CD&I, the OpFors (MEFs), LOGCOM, and the 
MARFORs (MARFORCOM, MARFORPAC), P&R, and C4 for their vetting/approval/
prioritization/resourcing of CRs. Other ERP customizations such as 
Engineer Change Proposals (ECPs) are adjudicated by the E-CCB but 
deferred to the GCSS-MC Future Requirements Working Group (G-FRWG) for 
inclusion as a future increment in the draft CDD/BCL developed by CD&I 
(requirements and capabilities).
    Mr. Conaway. Historically, the quality and integrity of the data 
undergoing conversion is a major contributor to schedule slippages and 
cost increases for ERP systems. What lessons are you applying from past 
problems with data conversion and data cleanliness to improve future 
outcomes for ERP deployments?
    Mr. Fanning. To document and leverage the lessons learned from each 
deployment, Navy ERP developed and annually updates the Navy ERP 
Command Implementation Guidance (CIG). This Guide provides details of 
the Navy ERP implementation process and key information on structuring 
a command's implementation teams and efforts for success. It also 
identifies critical success factors and provides timelines and 
checklists to help focus a command's resources on the right things at 
the right time including data conversion and cleansing. Navy ERP 
establishes Data Conversion Agreements (DCA) with each Command owning a 
system from which data will be converted into Navy ERP to ensure the 
accuracy and timeliness of data exchange between the respective 
systems. Approximately 24 months prior to deployment, Navy ERP conducts 
a Deployment Planning Kickoff Meeting with Command to discuss lessons 
learned including data conversion and cleansing. Navy ERP communicates 
the need to limit the conversion only to the data needed to execute in 
Navy ERP. Additionally, Navy ERP hosts a Data Conversion Workshop with 
Command to review the data conversion requirements, determine what data 
objects are required from each legacy system data and finalize plans 
for moving forward, to include the status of Command on-going data 
cleaning efforts.
    Navy ERP and the Command jointly developed a Data Conversion 
Strategy and Data Load Plan. The Data Conversion Strategy documents the 
data required to support the conversions and the activities to be 
performed by the legacy data owners in preparation for the cutover, 
including validation and reconciliation. The plan is a detailed, 
networked schedule of data conversion activities from legacy data 
extraction through data load into the Navy ERP solution. The strategy 
and plan includes multiple mock conversions and cutover practice to 
validate data. During the mock conversions Navy ERP provides a sandbox 
for the Commands to test business process scenarios using their own 
data allows them the opportunity to test and validate data quality. The 
Command's extensive use of this environment to complete all data 
cleansing activities prior to deployment significantly improved the 
quality of converted data and enabled commands to use the converted 
data as part of their training which increased user readiness. 
Successful application of the lessons learned, the extensive data 
cleansing work by the System Commands and their partnering with Navy 
ERP resulted in 100% data accuracy for the 3,659,908 converted data 
objects for the Naval Sea Systems Command Working Capital Fund sites, 
and 100% data accuracy for the 22,241,247 converted data objects for 
the Fleet Logistic Centers and their partner sites prior to their 
deployments in October and November 2011 respectively. Achieving 100% 
data accuracy for converted data enables commands to complete cutover 
activities and resume full operations in Navy ERP in approximately six 
weeks which minimizes impact to command business and ability to support 
fleet operations.
    The lessons learned from the contamination of ERPs by tainted data 
is resolved up front prior to a unit's cutover into GCSS-MC. BLUF: 
Contaminated data is NOT loaded into GCSS-MC. Questionable data is 
``fenced off'' and arbitrated outside of the system. Once cleansed, 
data is loaded in GCSS-MC. Procedurally, a thorough, 12-week cutover 
process comprising of equipment accountability, personnel training, use 
of a data cleansing tool, and testing (mock conversions) are conducted 
before any equipment data is loaded into the system. This stringent 
process screens/filters is attributable to a high level of data 
cleanliness. As previously mentioned, all questionable data is 
identified and segregated for causative analysis by the unit to 
adjudicate outside of the system and, once the data is cleansed, it is 
loaded into GCSS-MC. To date, using unit data accuracy is 99% and 
Marine Corps Logistics Command data accuracy is 98% (with 1%-2% being 
resolved outside of the system).
    Mr. Conaway. As the ERPs are implemented, what type of training is 
each of the users receiving? Is this training incorporated into broader 
training explaining the importance of good financial management?
    Mr. Fanning. Navy ERP end user training strategy incorporates best 
practices learned from years of private industry experience in training 
end users of ERP systems. Navy ERP's Business Process Experts, FMO and 
DFAS participate in all financial functional testing to ensure the 
system supports existing financial policy/guidance (FMR and U.S. 
Treasury). Navy ERP training strategy is based on knowledge transfer 
between the functional and business process experts at Navy ERP, Navy 
Financial Management Office (FMO) and those at each of the Systems 
Commands. That transfer begins with extensive business process 
workshops 18-24 months prior to deployment. The transfer continues 
through a Train-the-Trainer event generally scheduled four months prior 
to go-live. The knowledge gained by the deploying command's business 
process experts is transferred to the command's end users through just 
in time training events generally scheduled from two months prior to 
go-live to two months after. Finally, the knowledge transfer is 
continued through Navy ERP Program Office functional experts deployed 
to each command site providing over-the-shoulder support directly to 
command end users from three months prior to deployment through six 
months post-deployment to ensure effective business operations through 
the transition period. Basic users, those using primarily time and 
attendance functions, receive training through Web Based Training 
course. Power Users, those using more functionality and may have 
multiple roles, receive Instructor Lead Training provided by their 
Command's trainers and business process experts. For example, 
approximately 21,000 basic users and 9,854 power users were trained for 
the NAVSEA Working Capital Fund deployment and approximately, 4,500 
basic users and 807 power users were trained for the November 
deployment of the Single Supply Solution to Fleet Logistics Centers and 
their partner sites.
    The Navy ERP Program Office develops and maintains standard 
training materials. These incorporated both Navy standard financial 
management guidelines from Navy FMO and industry best practices. The 
training material consists of:

          Presentations containing business processes and best 
        practice business rules

          Step-by-step work instructions

          Hands-on exercises and supporting data

          Simulations of Navy ERP transactions

    Deploying commands have the option of supplementing the standard 
training materials with additional command-specific information, 
generally in the form of local business rules and command-specific data 
sets for hands-on exercises thereby enhancing the importance of the 
command financial management practices. The Navy ERP Program Office 
maintains a live training environment for hands-on exercise and 
practice. The configuration of the training environment is updated to 
mirror the Production environment once each quarter. The data is 
revised regularly to reflect changed or new functionality.
    GIT works with our Business Process in developing the training 
materials. GIT is not the owner or lead of the functionality. We get 
guidance from our BP Teams. Our BP Leads, including Financial BP Leads, 
work with FMO on development, testing, review and validation of the 
functionality and compliance matters. The implementation of training 
and its development for GCSS-MC is twofold. First, training is 
incorporated into the 12-week cutover process for using units to train 
users on their Role-Based Access (RBAC) within GCSS-MC. Second, Marine 
Corps, Training Education Command recently implemented a formal 
training curriculum for the Formal MOS-producing schools at Marine 
Corps Combat Service Support Schools (MCCSSS). As with any new 
curriculum, revisions to the curriculum are being developed to closely 
align usage of the system in the OpFors and Supporting Establishment. 
The volume of training received is directly attributable to their 
specific role within the system (e.g., entry-level users vs 
supervisors/managers). The formal training developed by TECOM addresses 
the macro-level issue of good financial management depending on RBAC 
(e.g., supply or fiscal personnel) from an ethical perspective for 
requisitions as stewards of taxpayer dollars.

    Mr. Conaway. Please provide the number of ``legacy'' systems 
currently in use to support business functions (e.g., financial 
management, acquisitions, logistics, personnel, etc) for each Service 
and the Fourth Estate. For each of the ERPs being implemented, please 
provide the number of legacy systems that will be retired and the 
estimated cost savings or cost avoidance once each of these ERPs are 
implemented. Furthermore, provide an explanation for the reasoning for 
not retiring the systems that will not be retired once the ERPs are 
implemented.
    Mr. Tillotson. LOGISTICS SYSTEMS: There were approximately 400 
logistics legacy systems identified and analyzed for ECSS processes, of 
which 240 will be retired following ECSS full deployment. We estimate 
information technology savings of $2B (10-yr lifecycle costs) after 
ECSS is fully deployed. The persistent systems are a mix of classified 
systems (ECSS is unclassified only), command- or program-specific 
systems which manage local processes (e.g., training records or 
production tooling), outside the scope of ECSS (e.g., military 
construction and environmental management), or are jointly owned/
operated with another DOD component.
    PERSONNEL AND PAY SYSTEMS: There are 32 personnel & pay legacy 
systems within the AF, of which, 20 will be retired following AF-IPPS 
full operational capability. We estimate $60M annually in savings on 
sustainment costs after AF-IPPS is fully deployed. The scope of AF-IPPS 
is focused upon executing the Pers/Pay mission, and retiring those 
systems with the highest sustainment costs (including the Air Force 
Military Personnel Data System (MILPDS) and Defense Joint Military Pay 
System (DJMS)), producing the most immediate return on investment. The 
remaining 12 systems are tangential to the core AF-IPPS mission of 
enabling and executing Personnel to Payroll outcomes (e.g., Wounded 
Warrior support, promotion board management) and are not targeted to be 
subsumed into AF-IPPS.
    FINANCIAL MANAGEMENT SYSTEMS: The Air Force uses 36 Financial 
Management systems, 9 of which will be retired from use by the Air 
Force with Defense Enterprise Accounting and Management System (DEAMS) 
Full Operating Capability (FOC). At FOC the Air Force expects to save 
on average $18M annually by the replacement of legacy information 
technology systems. The remaining systems are not being subsumed 
because they contain core functionality outside the DEAMS program scope 
(e.g., Budget Formulation, Funds Distributions), or are being addressed 
by other ERP systems (e.g., Military Pay in AF-IPPS, and Working 
Capital Fund Accounting in ECSS).
    Mr. Conaway. At what level are decisions made to retire/maintain 
legacy systems and approve ERP customizations?
    Mr. Tillotson. Decisions to retire or maintain legacy systems are 
made at the Deputy Chief of Staff (3-star level) in Headquarters Air 
Force. As a matter of course, we do not customize ERPs, but address 
requirements outside core ERPs through Reports, Interfaces, Conversions 
and Extensions (RICE).
    Mr. Conaway. Historically, the quality and integrity of the data 
undergoing conversion is a major contributor to schedule slippages and 
cost increases for ERP systems. What lessons are you applying from past 
problems with data conversion and data cleanliness to improve future 
outcomes for ERP deployments?
    Mr. Tillotson. The Air Force Integrated Personnel & Pay System (AF-
IPPS), Defense Enterprise Accounting & Management System (DEAMS) and 
Expeditionary Combat Support System (ECSS) actions described below help 
summarize the three lessons that we have learned from other ERP 
efforts. First, initiate the data cleansing effort as early in the 
acquisition process as possible. Second, the government should take the 
primary role in getting data cleansed--instead of handing the work off 
to an external vendor. Third, connect the data effort back to the 
business rules to make sure every business process performance metric 
is achieved.
    We have made data cleansing an early and very deliberate part of 
our ERP initiatives. Using lessons learned from the Army and other ERP 
efforts, ECSS has established a Data Management Organization (DMO) 
which has implemented ongoing data quality improvements and 
measurements. The ECSS DMO cooperates with the DEAMS program office in 
gathering data for review. The processes of the DMO are focused on 
identifying and executing cleansing tasks in existing operational 
systems, and these repeatable processes are adapted as additional data 
quality concerns/targets are identified.
    The Air Force has embarked on an extensive clean-up and data 
cleansing effort to support transition to DEAMS and our other major 
ERPs in the area of financial management data, To promote consistency 
among the ERPs, we are also working to ensure data business rules are 
uniform. Our Financial Management data management team reviews old, 
unstructured legacy data elements and values, understanding what each 
data element was designed to represent, and provides structure (one 
value to one definition) to translate to Standard Financial Information 
Structure (SFIS). The Air Force Financial Management Data Quality 
Service (FM DQS) is the Air Force repository for FM data elements and 
data element values. The Air Force ERPs validate any FM Data request 
thru FM DQS. A dashboard tracks the data cleansing efforts for 
management oversight and action. The Air Force also created an 
application to track the status of open documents (data clean-up) in 
the accounting system. Tri-Annual Review (TAR) is an application which 
resides in the FMSuite system. The 3 times a year reviews concentrate 
on identifying dormant obligations. Resource Advisors (RAs) research 
each document for validity or closure. Additionally, organizational RAs 
continually monitor the Open Document List (ODL) and take follow-up 
action to close unsupported, duplicative, remaining balances, or 
erroneous documents in the accounting system.
    The Air Force has initiated a process for the AF-IPPS 
implementation well ahead of system development, to ensure that we have 
a controlled, mature data cleansing operation in place when the data is 
needed to support development, testing, and transition activities for 
AF-IPPS. Further, the Air Force is also constructing a Data Management 
Environment (DME) which will provide the venue and tools for cleansing 
Personnel and Pay data, and hosting the Services to make the data 
available to authorized consumers. The DME will be built and tested 
prior to AF-IPPS contract award.
    Mr. Conaway. As the ERPs are implemented, what type of training is 
each of the users receiving? Is this training incorporated into broader 
training explaining the importance of good financial management?
    Mr. Tillotson. For all the ERPs, the Air Force conducts (or plans 
to conduct) role-based training which is aligned with the 
implementation of the ERP and the new business processes. Integral to 
the training is instruction in the processes and controls that assure 
the completeness of transactional information critical to ensuring 
adherence to financial and materiel controls. These detailed, 
controlled processes are the strength of ERPs.
    The DEAMS program will continue role-based training as we move 
forward with deployments. DEAMS-specific training is currently grouped 
into four major categories--DEAMS/Oracle Familiarization Training, 
Initial Deployment Training, Sustainment/Recurring Training, and Post 
Deployment/Pipeline Training. DEAMS takes a blended-learning approach 
to training, i.e., training is delivered using a variety of methods 
including classroom Instructor Led Training (ILT), Web Based Training 
(WBT), and Computer Based Training (CBT). Future options will include 
delivery of instruction via Video Teleconferencing (VTC), Defense 
Connect Online (DCO), or similar capabilities. DEAMS training will be 
developed in accordance with AETC standards. In its final form, DEAMS 
training will be hosted on the AF Learning Management System (LMS) and 
accessed through the Financial Management Distance Learning Center 
(FMDLC) which can be utilized for delivering computer based training 
(CBT). Training materials will be made available via the FMDLC for 
access across the enterprise during deployment and post-deployment 
sustainment.
    ECSS training will be conducted through a blended learning approach 
to include a combination of role-based, instructor-led, and computer 
based training courses. Training materials will be made available in a 
centralized location to allow for management across the enterprise 
during fielding and post-fielding sustainment. In addition, end users 
will have access to training materials in the Online Performance 
Support System (OPSS) within the ECSS application.
    For AF-IPPS, we are addressing training as a subset of our 
strategic change management effort, preparing the entire workforce for 
the integration of Personnel and Pay. This will include training all 
500,000+ Airmen as customers of AF-IPPS--and will include an extensive 
effort to train each Personnel & Pay technician on how to operate the 
new environment on behalf of the end-users. As noted above, the 
training will be role-based, and focus not only the software, but also 
upon how the end-to-end business process will execute. Each of the 105 
Personnel and Pay business processes will be pre-defined to include the 
specific performance metrics, along with the auditing standards 
required to demonstrate financial control as transactions are engaged. 
The AF-IPPS training materials and classes will be built around the 
end-to-end processes to ensure our workforce is prepared to both run 
and use AF-IPPS immediate upon deployment.

                                  
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