Customs Service Modernization: Strategic Information Management Must Be
Improved for National Automation Program to Succeed (Letter Report,
05/09/96, GAO/AIMD-96-57).
The U.S. Customs Service is very aware that its ability to effectively
conduct business in the future depends heavily on successfully
modernizing its import process and automated systems. To its credit,
Customs is redesigning its import process. It is also developing a new
automated import system--the Automated Commercial Environment--to
support this new process. Customs' efforts, however, are at risk for
failure because the agency is not effectively applying best practices to
overcome the serious risks arising from such an ambitious systems
modernization. For example, contrary to best practices, Customs chose
hardware, software, and telecommunications for its systems before it
redesigned its key business processes. Moreover, Customs has not been
applying specific criteria to assess projects and analyze project costs
and benefits. Finally, Customs has not established clear accountability
for ensuring that the requirements of the National Customs Automation
Program are successfully implemented.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: AIMD-96-57
TITLE: Customs Service Modernization: Strategic Information
Management Must Be Improved for National Automation
Program to Succeed
DATE: 05/09/96
SUBJECT: Systems conversions
ADP procurement
Systems design
Customs administration
Requirements definition
Reengineering (management)
Information resources management
Information systems
Accountability
Computer security
IDENTIFIER: Customs Service National Automation Program
Customs Service Automated Commercial Environment Import
System
Customs Service Distributed Computing for the Year 2000
Project
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Cover
================================================================ COVER
Report to the Chairman, Subcommittee on Trade, Committee on Ways and
Means, House of Representatives
May 1996
CUSTOMS SERVICE MODERNIZATION -
STRATEGIC INFORMATION MANAGEMENT
MUST BE IMPROVED FOR NATIONAL
AUTOMATION PROGRAM TO SUCCEED
GAO/AIMD-96-57
Customs Service Modernization
(511089)
Abbreviations
=============================================================== ABBREV
ACE - Automated Commercial Environment
CDC-2000 - Customs Distributed Computing for the Year 2000
NCAP - National Customs Automation Program
SIM - Strategic Information Management
Letter
=============================================================== LETTER
B-261815
May 9, 1996
The Honorable Philip M. Crane
Chairman, Subcommittee on Trade
Committee on Ways and Means
House of Representatives
Dear Mr. Chairman:
This report responds to your request that we assess the U.S. Customs
Service's efforts to modernize its automated systems. Specifically,
you asked that we determine (1) the status and adequacy of Customs'
efforts to implement the National Customs Automation Program
(NCAP),\1 which seeks to streamline the way Customs conducts its
import business, and (2) whether in implementing NCAP, Customs is
applying the best practices used by successful private and public
organizations to improve mission performance through strategic
information management and technology.
To determine the status and adequacy of Customs' efforts to implement
NCAP, we reviewed the authorizing legislation, interviewed key
program and information system officials as well as agency
contractors, and examined relevant plans, including annual and 5-year
business and information systems plans. We compared Customs'
approach with the best practices of successful agencies and
organizations and with Customs' internal system development policy.
We conducted our review from June 1995 through February 1996, in
accordance with generally accepted government auditing standards.
Details of our scope and methodology are contained in appendix I.
Customs commented on a draft of this report. These comments are
discussed in the Agency Comments section and are reprinted in
appendix II.
--------------------
\1 This program was mandated in December 1993 by Public Law 103-182
(19 U.S.C. 1411 et seq.).
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
Customs is acutely aware that its ability to effectively conduct
business in the future depends heavily on successfully modernizing
its import process and automated systems. To its credit, Customs is
redesigning its import process. It is also developing a new
automated import system--the Automated Commercial Environment
(ACE)--to support this new process.
Customs' efforts, however, are vulnerable to failure because the
agency is not effectively applying best practices to mitigate the
serious risks associated with such an ambitious systems modernization
effort. For example, contrary to best practices, Customs selected
hardware, software, and telecommunications for ACE and other systems
before it redesigned its key business processes. In addition,
Customs is not applying specific criteria in assessing projects and
analyzing project costs and benefits. Finally, Customs has not
established clear accountability for ensuring that NCAP requirements
are successfully implemented.
BACKGROUND
------------------------------------------------------------ Letter :2
Customs' responsibility includes (1) enforcing the laws governing the
flow of goods and persons across the borders of the United States and
(2) assessing and collecting duties, taxes, and fees on imported
merchandise. To speed the processing of imports and improve
compliance with trade laws, the Congress in 1993 enacted legislation
that enabled Customs to streamline import processing through
automation.\2 The legislation also eliminated certain legislatively
mandated paper requirements, allowing Customs to move from a
paper-intensive to an automated import environment. Further, it
required Customs to establish NCAP and specified critical functions
that this program must provide, including the ability to
electronically file import entries at remote locations and process
drawback claims.\3
In response to the authorizing legislation, Customs launched a major
initiative in 1994 to reorganize the agency, streamline operations,
and modernize the automated systems that support operations. In the
process, Customs identified its core business processes as trade
compliance (imports), outbound goods (exports), and passengers.
In 1992, prior to redesigning its operations, Customs decided to move
from centralized to distributive computing and selected a suite of
hardware, software, and telecommunications products to enable it to
do so. Customs refers to its effort to move to decentralized
computing using these products as the Customs Distributed Computing
for the Year 2000 (CDC-2000) project. The agency plans to implement
ACE and its other modernized systems applications on these products.
According to Customs, as of October 1, 1995, it had spent $63 million
purchasing these products including upgrading its personal computers,
installing local area networks, and acquiring minicomputers and
related peripherals. Although no detailed analysis has been
prepared, the CDC-2000 project director estimated that when
completed, total purchases could reach $500 million.
In January 1995, Customs hired Gartner Group Consulting Services to
review the adequacy of this approach, and the contractor issued its
report in April 1995.\4 About this same time, Customs engaged another
contractor--IBM Consulting Group--to determine whether the agency was
technically capable of developing ACE. IBM reported its findings in
February 1995.\5
--------------------
\2 19 U.S.C. 1411 et seq.
\3 Drawbacks are refunds of duties and taxes paid on imported goods
which are subsequently exported or destroyed.
\4 U.S. Customs Service, CDC-2000 Review, Gartner Group Consulting
Services, April 12, 1995.
\5 U.S. Customs Service Automated Commercial Environment (ACE)
Technical Readiness Assessment Final Report, IBM Consulting Group,
February 27, 1995.
CUSTOMS HAS A STRATEGY FOR
IMPLEMENTING NCAP
------------------------------------------------------------ Letter :3
Customs' strategy for implementing NCAP consists of three
initiatives. First, Customs is redesigning the import process to
better meet customer needs and improve operational efficiency and
effectiveness. In doing so, the agency identified and prioritized
the needs of its internal and external customers involved in import
processing. Using this information, Customs determined how the new
import process will work and is testing this new process at selected
ports of entry. Customs plans to complete the definition of its
redesigned import process by September 1997.
Second, Customs is developing its new automated import processing
system (ACE) applications to support the new import process and
comply with NCAP-mandated functions. Customs is in the early stages
of system development. Specifically, the agency has recently issued
user requirements and is in the process of determining functional
requirements. Customs estimates that when completed, the system will
cost $125 million over its 10-year planned life. As of March 1996,
Customs had spent $25 million on ACE. Customs plans to begin
deploying ACE in October 1998.
Finally, until ACE is deployed, Customs plans to enhance its existing
import processing system--the Automated Commercial System--which
operates in the existing centralized computing environment, to
provide selected NCAP-mandated functions critical to meeting agency
and trade community needs. For example, Customs is modifying this
system to allow importers to file documentation at a port of entry
other than where the goods are to arrive or be examined. Rather than
wait for this function to be deployed with ACE, Customs plans to add
this function to (1) facilitate inspections and import processing and
(2) reduce the importers' administrative burden by eliminating the
need of having importer staff at the port of entry. Customs is
currently testing this capability with seven importers at selected
locations.
Customs is also enhancing its current Automated Commercial System to
provide electronic filing capabilities for drawback claims. To date,
Customs has modified the system to enable electronic (1) filing of
such claims by the trade community and (2) comparison of key
information on drawback claims to the original import entries.
Customs also plans to improve its controls over duplicate and
excessive drawback payments, which we previously noted were a
problem, by enhancing this system to maintain a cumulative record of
drawback amounts paid against individual line items on import
entries. This enhancement is scheduled to be completed by October
1997.
CUSTOMS IS NOT EFFECTIVELY
APPLYING CRITICAL MANAGEMENT
PRACTICES
------------------------------------------------------------ Letter :4
In implementing its NCAP strategy, Customs has not adhered to
strategic information management best practices that help
organizations (1) mitigate the risks associated with modernizing
automated systems and (2) better position themselves to achieve
success. Specifically, Customs did not (1) conduct the requisite
analyses (e.g., cost-benefit, feasibility, alternatives) before
committing to the CDC-2000 project, (2) redesign its import and other
business processes before the agency selected the hardware for ACE
and other systems, (3) manage ACE as an investment, and (4) designate
strict accountability for ensuring that it successfully incorporates
all NCAP-mandated functions into the agency's modernization effort.
CDC-2000 SELECTED WITHOUT
ADEQUATE ANALYSIS
---------------------------------------------------------- Letter :4.1
Organizations that have successfully modernized operations and
systems use a structured approach to identify the architecture that
most efficiently and effectively meets their information needs.
First, they redesign their old business processes. Then they analyze
the new processes to identify (1) the information needs of the entire
organization and (2) alternative ways of meeting them, including
consideration of costs and benefits. Finally, the organizations use
this analysis to select an optimal businesswide configuration, which
specifies where and how processing will occur and identifies the
hardware, software, telecommunications, and other elements needed to
support new automated systems. This configuration is commonly
referred to as an architecture and serves as a guide for modernizing
automated systems. Organizations that do not follow this disciplined
approach risk (1) automating the wrong processes and (2) developing
systems that do not function well or that cannot be readily
integrated with other systems. Consequently, the agency may develop
systems that do not enhance the agency's mission performance or that
reach only a fraction of their potential to do so.
However, Customs selected its CDC-2000 approach for ACE and other
systems without using this disciplined approach. Specifically, the
agency began buying minicomputers, software, and other equipment to
support decentralized processing in 1993, but did not start to
redesign its first critical business process (imports) until late
1994 and the other two processes (passenger, exports) until January
and August 1995. In addition, Customs does not plan to complete
these redesign efforts until September 1997, October 1996, and
December 1996, respectively. In formulating the CDC-2000 project,
Customs did not identify the information needs of the entire
organization and consider alternative ways of meeting them as well as
the respective costs and benefits. These shortcomings were also
reported by Gartner. In this regard, the contractor stated that
Customs' selected products were primarily a "buy list" and were
largely identified without taking into consideration the information
needs of agency processes and systems. While Gartner stated that
"the CDC-2000 architecture is, in general, valid and reasonable,"
Gartner recommended that Customs use a disciplined approach to fully
identify its needs and only then select products to meet those needs.
Customs officials said they had selected the products included in the
CDC-2000 initiative before the import process was redesigned because
they needed to move from their current centralized system to
decentralized processing and believed that the products selected
would meet any future system needs. They also said that, at the time
of selection, they did not believe a rigorous supporting analysis was
needed because the products chosen were widely used by industry.
Further, although CDC-2000 was adopted over 4 years ago, Customs does
not believe it has wasted its time and resources because, according
to the agency, only $4 million of the $63 million CDC-2000 funds
spent to date have been used to buy minicomputers, software, and
other equipment to support decentralized processing. Customs
officials noted that, to date, $59 million has been used to upgrade
and install personal computers and local area networks, which needed
to be acquired regardless of the architecture that was ultimately
formulated.
We recognize Customs' need to improve office automation using
personal computers and local area networks. However, Customs'
rationale for purchasing minicomputers, software, and other equipment
is based on several faulty assertions. First, Customs risks wasting
hundreds of millions of dollars it plans to spend in the future on
the CDC-2000 project should it continue purchasing hardware and
software to support decentralized processing without conducting a
thorough analysis. Second, while decentralized processing and the
products Customs selected may be widely used, this has no bearing on
whether they are a cost-effective approach to meeting Customs' needs.
Further, since the agency does not yet know how it plans to conduct
its business in the future or what automated systems would best
support these new business processes, it is in no position to commit
to CDC-2000. Third, the Federal Information Resources Management
Regulation and Office of Management and Budget Circular A-130 require
thorough analyses to justify major systems efforts such as CDC-2000.
Finally, best practice organizations have learned that using a
structured approach can help them effectively use resources and lead
to order-of-magnitude gains in productivity.
ACE NOT MANAGED AS AN
INVESTMENT
---------------------------------------------------------- Letter :4.2
Successful organizations manage information system projects as
investments rather than expenses. This includes (1) creating an
investment review board of senior program and automated systems
managers to select, monitor, and evaluate system projects, (2)
establishing explicit criteria to assess the merits of each project
relative to others, including the use of cost, benefit, and risk
analyses, and (3) following structured systems development
methodologies throughout the system's life. Such disciplined control
processes are required by the Office of Management and Budget to help
federal agencies decide which planned systems are worthwhile
investments and ensure that the risks associated with building those
systems are adequately controlled.\6
Although its annual automated systems expenditures total about $150
million, Customs does not manage ACE and its other systems as
investments. First, while Customs has a systems steering committee,
composed of senior officials who meet periodically to monitor
automation projects such as ACE, the committee functions primarily as
a sounding board that addresses concerns raised by project managers
as well as committee members rather than as an investment review
board. For example, the committee has not developed explicit
decision criteria to assess mission cost, benefits, and risk of both
ongoing and planned projects. Instead, the committee makes decisions
on ACE and other systems, including Automated Commercial System
enhancements, without considering such critical information as the
merits of each project relative to others, how well these systems
will contribute to improving mission performance, if their value will
exceed their cost, and how likely they are to succeed.
Customs officials acknowledged the steering committee's shortcomings
and told us that, while they had initiated an effort in January 1995
to redefine the steering committee's role, including managing systems
as investments, not much progress has been made since then. Customs'
Deputy Commissioner said he intends to restart efforts to establish
an investment subcommittee under the steering committee but has not
established a target date to do so.
Second, although Customs' system development policies require
cost-benefit analyses to be performed prior to developing critical
and costly systems, we found that Customs had not performed such
analyses for ACE and the CDC-2000 project.\7
Gartner and IBM also reported that such analyses were lacking. In
this regard, Gartner stated that Customs needed to assess the cost
and benefits for CDC-2000 because (1) the agency had only a limited
understanding of what it will ultimately cost and (2) if Customs
waited much longer, the cost of purchases of selected products could
mushroom beyond the agency's ability to control it. Similarly, IBM
stated that to be successful with ACE, Customs needed to identify and
continuously monitor the cost and benefits of this system. Customs
officials told us they recognize that until the agency conducts these
analyses, it will not know whether these major system investments are
worthwhile. In response to these findings, Customs hired contractors
to help perform these analyses, but it continues to develop ACE on
CDC-2000 hardware and plans to continue making CDC-2000 purchases.
These analyses are scheduled to be completed by July 1996.
Third, in developing ACE, Customs also skipped or has not completed
other required system development steps necessary to control
development risks. Specifically, Customs has not resolved how to
incorporate into ACE critical functions mandated over 2 years ago in
NCAP. These functions include reconciling adjustments to importers'
duties and processing drawback claims. It also did not prepare a
security plan, although Customs has had problems in the past
implementing effective internal controls to protect systems and data.
Customs officials acknowledged that, given where they are in the ACE
development process, they should have determined how to deliver
NCAP-mandated functions and completed their security plan. In
addition, they told us that it is their intention to complete the
security plan in July 1996 and update the user requirements in June
1996.
--------------------
\6 Office of Management and Budget's Circular A-130 Revised,
Transmittal Memorandum 2 (July 1994) and investment guide, Evaluating
Information Technology Investments, A Practical Guide, (Version 1.0,
November 1995).
\7 Systems Development Life Cycle Handbook (HB-5500-04), Office of
Information and Technology, U.S. Customs Service, August 1995.
ACCOUNTABILITY FOR
IMPLEMENTING NCAP FUNCTIONS
UNCLEAR
---------------------------------------------------------- Letter :4.3
Assigning clear accountability and responsibility for information
management decisions and results is another important practice
identified by successful organizations. As we pointed out in our
January 1995 testimony\8 on Customs' plan to modernize the agency,
Customs is in the midst of a major reorganization and during this
time of change, it needs to clarify roles and responsibilities to
reinforce accountability and facilitate mission success.
We found, however, that clear accountability for meeting NCAP
requirements is lacking. Customs has established a board called the
Trade Compliance Board of Directors to redesign its import process.
This board consists of senior officials who represent the import
process and related systems. However, while the board's charter
makes it accountable for the redesigned import process, it does not
establish accountability for successfully implementing NCAP.
Customs' Deputy Commissioner agreed that the agency needs to assign
accountability and requisite authority to ensure that the functions
mandated in NCAP are successfully implemented.
--------------------
\8 Customs Service: Status of Reorganization and Modernization
Efforts (GAO/T-GGD/AIMD-95-70, January 30, 1995).
CONCLUSIONS
------------------------------------------------------------ Letter :5
Customs recognizes that it (1) cannot afford to fail in its effort to
redesign and automate critical NCAP processes and (2) needs to make a
more concentrated effort to implement best practices. However,
Customs has not assigned responsibility for ensuring that NCAP is
successfully implemented. Further, Customs has no assurance that
continued buying of CDC-2000 equipment is the best way to accomplish
its mission or that the hardware selected for ACE and other systems
is appropriate.
Customs is in the early stages of its modernization and has time to
implement these best practices. While Customs is starting to take
corrective action, the agency is at serious risk and vulnerable to
failure until such action is completed.
RECOMMENDATIONS
------------------------------------------------------------ Letter :6
We recommend that, prior to additional CDC-2000 equipment purchases
(except those for office automation needs) and before beginning to
develop any applications software that will run on this equipment,
the Commissioner of Customs should:
-- Assign accountability and responsibility for implementing NCAP.
-- Ensure that the export and passenger business processes are
completed and the requirements generated from these two tasks,
along with those of the import process requirements, are used to
determine
how Customs should accomplish its mission in the future, including
who will perform operations and where they will be performed,
what functions must be performed as part of these operations, what
information is needed to perform these functions, and where data
should be created and processed to produce such information,
what alternative processing approaches could be used to satisfy
Customs' requirements, and what are the costs, benefits, and risks of
each approach, and
what processing approach is optimal, and not resume CDC-2000
purchases unless CDC-2000 is determined to be the optimal approach.
-- Complete the agency's effort to redefine the role of the systems
steering committee to include managing systems as investments as
required by the Office of Management and Budget's Circular A-130
and information technology investment guide. This effort should
include developing and using explicit criteria to guide system
development decisions and using the criteria to revisit whether
Customs' planned investments, including ACE and Automated
Commercial System enhancements, are appropriate.
-- Direct the steering committee to ensure that all systems being
developed strictly adhere to Customs' system development steps.
As part of this oversight, we recommend that before applications
are developed for ACE, the steering committee ensure that
Customs resolves how to incorporate NCAP-mandated functions into
ACE and prepares a security plan.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :7
In commenting on a draft of this report, Customs agreed with all of
our recommendations and said it plans to or has acted to implement
them. First, Customs agreed to clarify and document accountability
and responsibility for implementing NCAP. Second, Customs agreed to
perform the requisite analyses to determine the optimal architecture
and to cease CDC-2000 purchases, except those for office automation
needs and prototyping, until this determination is made, which is
fully responsive to our recommendation. Third, according to Customs,
the agency has formally established its investment subcommittee and
is studying best investment practices of federal and private sector
organizations, which the investment subcommittee plans to use to
develop operating procedures and investment criteria for reviewing
system decisions. Finally, Customs agreed to have the systems
steering committee address compliance with agency system development
procedures at the committee's next meeting.
---------------------------------------------------------- Letter :7.1
We are sending copies of this letter to the Chairmen and the Ranking
Minority Members of the Senate Committee on Finance; the
Subcommittees on Treasury, Postal Service and General Government of
the Senate and House Appropriations Committees; the Senate Committee
on Governmental Affairs; and the House Committee on Government Reform
and Oversight. We are also sending copies to the Secretary of the
Treasury, Commissioner of Customs, and Director of the Office of
Management and Budget. Copies will also be available to others upon
request. If you have questions about this letter, please contact me
at (202) 512-6240. Major contributors are listed in appendix III.
Sincerely yours,
Linda D. Koontz
Associate Director,
Information Resources Management/
General Government Issues
SCOPE AND METHODOLOGY
=========================================================== Appendix I
To determine the status of Customs' strategy for implementing the
National Customs Automation Program (NCAP), we reviewed the law--and
its legislative history--establishing NCAP. We interviewed key
Customs program and information system officials regarding process
improvement and systems modernization efforts for the import process.
We examined Customs' People, Processes, and Partnerships report of
September 1994, which outlines the agency's vision for organizational
and process change, and examined the 5-year information systems plan
of April 1995 for fiscal years 1997-2001. We also reviewed
background information on Customs' existing automated import
processing system and documents supporting current enhancements to
that system as well as the (1) annual business plan, (2) project
plan, and (3) user requirements documents for Customs' planned ACE
system.
To assess the adequacy of Customs' strategy for implementing NCAP, we
assessed Customs' strategic information management processes for
developing ACE. In analyzing Customs' processes, we applied
fundamental best practices used by successful private and public
sector organizations as discussed in our report, Executive Guide:
Improving Mission Performance Through Strategic Information
Management and Technology (GAO/AIMD-94-115, May 1994), and our
related guide Strategic Information Management (SIM) Self-Assessment
Toolkit (GAO/Version 1.0, October 28, 1994, exposure draft). We also
made our assessment using the (1) Office of Management and Budget's
Circular A-130 Revised, Transmittal 2 (July 1994) and investment
guide Evaluating Information Technology Investments, A Practical
Guide (Version 1.0, November 1995) and (2) General Services
Administration's guide Critical Success Factors for Systems
Modernization (October 1988).
Specifically, to determine if information resources management plans
supported the agency mission and customer needs for imports, we
interviewed planning officials and examined 5-year and annual
business and information management plans. To assess whether the
business process is being considered in developing ACE, we conducted
interviews and examined documentation for the redesigned import
process, including the structured methodology used to conduct this
initiative. At user conferences held by Customs, we also interviewed
internal and external users of the current import system to determine
whether customer information requirements are being identified in
developing ACE.
To determine whether ACE was guided by an architecture, we reviewed
internal studies evaluating Customs' distributed computing
environment. We also analyzed commissioned studies, interviewed the
contractors performing the studies, and obtained Customs' response to
the technical studies. In assessing whether CDC-2000 meets
agencywide information needs, we examined agency documents and
interviewed all three core business process owners as well as
information systems officials.
To determine if ACE is managed as an investment, we interviewed
members of Customs' systems steering committee and examined its
minutes and an agenda book with background information for a
committee meeting. Also, we reviewed Customs' systems development
life cycle procedures and compared ACE to applicable procedures to
determine if required steps were completed at this initial stage of
ACE development.
Finally, to determine whether a single official was designated to
ensure that NCAP requirements are met we interviewed members of the
Trade Compliance Board of Directors which provides oversight of the
redesign of the import process. We also examined the board's
charter, identified which Customs organizations were represented on
the board, and reviewed minutes of meetings.
Our work was performed at Customs headquarters in Washington, D.C.,
and its Data Center in Newington, Virginia.
(See figure in printed edition.)Appendix II
COMMENTS FROM THE U.S. CUSTOMS
SERVICE
=========================================================== Appendix I
(See figure in printed edition.)
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III
ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C.
Mark E. Heatwole, Senior Assistant Director
Antionette Cattledge, Assistant Director
Brian C. Spencer, Technical Assistant Director
Agnes I. Spruill, Senior Information Systems Analyst
Gary N. Mountjoy, Senior Information Systems Analyst
Cristina T. Chaplain, Communications Analyst
*** End of document. ***