United States Government Accountability Office

GAO Testimony 

Before Congressional Subcommittees

FINANCIAL 

MANAGEMENT 

SYSTEMS 

DHS Has an Opportunity to 

Incorporate Best Practices 

in Modernization Efforts 

Statement of McCoy Williams 

Director, Financial Management and Assurance 

Keith A. Rhodes 

Chief Technologist, Applied Research and Methods 

Center for Technology and Engineering 

For Release on Delivery

Expected at 3:00 p.m. EST 

Wednesday, March 29, 2006

 

GAO-06-553T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 29, 2006

FINANCIAL MANAGEMENT SYSTEMS

DHS Has an Opportunity to Incorporate 

Highlights of GAO-06-553T, a testimony Best Practices in Modernization Efforts 

before congressional subcommittees 

Over the years, GAO has reported

on various agencies’ financial 

management system 

implementation failures. GAO’s 

recent report (GAO-06-184) 

discusses some of the most 

significant problems previously

identified with agencies’ financial

management system modernization 

efforts. For today’s hearing, GAO 

was asked to provide its 

perspectives on the importance of

the Department of Homeland 

Security (DHS) following best 

practices in developing and 

implementing its new financial 

management systems and avoiding

the mistakes of the past. GAO’s 

testimony (1) discusses the 

recurring problems identified in

agencies’ financial management

systems development and 

implementation efforts, (2) points 

out key financial management

system modernization challenges at 

DHS, and (3) highlights the building 

blocks that form the foundation for 

successful financial management

system implementation efforts. 

GAO’s work and that of agency inspectors general over the years has shown 

that agencies have failed to employ accepted best practices in systems 

development and implementation (commonly referred to as disciplined 

processes) that can collectively reduce the risk associated with 

implementing financial management systems. GAO’s recent report identified 

key causes of failures within several recurring themes including 

(1) disciplined processes, such as requirements management, testing, and 

project management; and (2) human capital management, such as workforce 

planning, human resources, and change management. Prior reports have 

identified costly systems implementation failures attributable to problems in 

these areas at agencies across the federal government. 

DHS faces unique challenges in attempting to develop integrated financial 

management systems across the breadth of such a large and diverse 

department. DHS inherited a myriad of redundant financial management 

systems from 22 diverse agencies and about 100 resource management 

systems. Among the weaknesses identified in prior component financial 

audits were insufficient internal controls or processes to reliably report 

financial information such as revenue, accounts receivable, and accounts 

payable; significant system security deficiencies; financial systems that 

required extensive manual processes to prepare financial statements; and 

incomplete policies and procedures necessary for conducting basic financial 

management activities. In August 2003, DHS began a program to consolidate 

and integrate DHS financial accounting and reporting systems. DHS officials 

said they recently decided to develop a new strategy for the planned 

financial management systems integration program, referred to as eMerge2

, 

because the prior strategy was not meeting its performance goals and 

timeline. DHS’s revised strategy will allow DHS components to choose from 

an array of existing financial management shared service providers. 

Based on industry best practices, GAO identified four key concepts that will 

be critical to DHS’s ability to successfully complete its planned migration to 

shared service providers. Careful consideration of these four concepts, each 

one building upon the next, will be integral to the success of DHS’s strategy. 

The four concepts are 

• developing a concept of operations, 

• defining standard business processes, 

• developing a strategy for implementing DHS’s shared services approach 

across the department, and 

• defining and effectively implementing disciplined processes necessary to 

properly manage the specific projects. 

With DHS at an important crossroads in implementing financial management 

systems, it has an excellent opportunity to use these building blocks to form 

a solid foundation on which to base its efforts and avoid the problems that 

have plagued so many other federal agencies. 

www.gao.gov/cgi-bin/getrpt?GAO-06-553T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact McCoy 

Williams at (202) 512-9095 or Keith Rhodes 

at (202) 512-6412. 
Mr. Chairmen and Members of the Subcommittees: 

It is a pleasure to be here today to participate in this joint oversight 

hearing1

 on the Department of Homeland Security’s (DHS) ongoing efforts

to effectively manage its information technology (IT) projects. Modern 

financial management systems are a critical component to instituting 

strong financial management as called for by the Chief Financial Officers 

(CFO) Act of 1990, the Federal Financial Management Improvement Act of 

1996 (FFMIA), and other legislation. As we testified2

 in November 2005, 

agencies continue to struggle with developing and implementing 

integrated systems that achieve expected functionality within cost and 

timeliness goals. While most CFO Act agencies have obtained clean (or 

unqualified) audit opinions on their financial statements, the underlying 

financial systems remain a serious problem. Hearings such as this one 

today foster meaningful financial management reform. 

Over the years, we have reported on various agencies’ financial

management system implementation failures. Our recent report,3

 which 

was prepared at the request of the Subcommittee on Government 

Management, Finance, and Accountability, House Committee on 

Government Reform, discusses some of the most significant problems and 

observations we identified with agencies’ financial management system 

modernization efforts. Today, we would like to provide our perspectives 

on the importance of DHS following best practices in developing and 

implementing its new financial management systems. Specifically, we 

would like to 

• discuss the recurring problems we and others have identified in agencies’ 

financial management systems development and implementation efforts, 

• point out key financial management system modernization challenges at

DHS, and 

 1

Joint hearing held by the Subcommittee on Government Management, Finance, and 

Accountability, House Committee on Government Reform and the Subcommittee on 

Management, Integration, and Oversight, House Committee on Homeland Security. 

2

GAO, CFO Act of 1990: Driving the Transformation of Federal Financial Management, 

GAO-06-242T (Washington, D.C.: Nov. 17, 2005). 

3

GAO, Financial Management Systems: Additional Efforts Needed to Address Key Causes 

of Modernization Failures, GAO-06-184 (Washington, D.C.: Mar. 15, 2006).

Page 1 GAO-06-553T 
• highlight the building blocks that form the foundation for successful 

financial management system implementation efforts. 

Our statement is based upon our recently issued report,4

 as well as our 

previous reports and testimonies, which were performed in accordance 

with U.S. generally accepted government auditing standards. We have not

performed a detailed review of DHS’s financial management 

transformation efforts. 

In our recent report,5

 we summarize many of the agencies’ financial 

management system implementation failures that have been previously 

reported by us and inspectors general (IG). Our work and that of the IGs 

over the years has shown that agencies have failed to employ accepted 

best practices in systems development and implementation (commonly 

referred to as disciplined processes) that can collectively reduce the risk 

associated with implementing financial management systems. In our 

report, we identified key causes of failures within several recurring 

themes, including disciplined processes and human capital management. 

DHS would be wise to study the lessons learned through other agencies’ 

costly failures and consider building a strong foundation for successful 

financial management system implementation, as we will discuss later in 

our testimony. 

From our review of over 40 prior reports, we identified weaknesses in the 

following areas of disciplined processes. 

Lessons Learned in 

Recurring Failures of 

Federal Agency 

Financial 

Management System 

Implementations 

Disciplined Processes 

Have Not Been Fully 

Employed • Requirements management. Ill-defined or incomplete requirements 

have been identified by many system developers and program managers as 

a root cause of system failure.6

 It is critical that requirements—functions 

the system must be able to perform—be carefully defined and flow from 

the concept of operations (how the organization’s day-to-day operations 

are or will be carried out to meet mission needs). In our previous work, we 

have found agencies with a lack of a concept of operations, vague and 

 4

GAO-06-184. 

5

GAO-06-184. 

6

Requirements are the blueprint that system developers and program managers use to 

design and develop a system. 

Page 2 GAO-06-553T 
ambiguous requirements, and requirements that are not traceable or 

linked to business processes. 

• Testing. Complete and thorough testing is essential to provide reasonable 

assurance that new or modified systems will provide the capabilities in the 

requirements. Testing is the process of executing a program with the 

intent of finding errors.7 Because requirements provide the foundation for

system testing, they must be complete, clear, and well documented to 

design and implement an effective testing program. Absent this, an 

organization is taking a significant risk that substantial defects will not be 

detected until after the system is implemented. Industry best practices 

indicate that the sooner a defect is recognized and corrected, the cheaper 

it is to fix. In our work, we have found flawed test plans, inadequate timing 

of testing, and ineffective systems testing. 

• Data conversion. In its white paper8 on financial system data conversion,9

the Joint Financial Management Improvement Program (JFMIP)10

identified data conversion as one of the critical tasks necessary to 

successfully implement a new financial system. JFMIP also noted that if 

data conversion is done right, the new system has a much greater 

opportunity for success. On the other hand, converting data incorrectly or 

entering unreliable data from a legacy system has lengthy and long-term 

repercussions. The adage “garbage in, garbage out” best describes the 

adverse impact. Examples of problems we have reported on include 

agencies that have not properly developed and implemented good data 

conversion plans, have planned the data conversion too late in the project, 

and have not reconciled account balances. 

 7

Glenford J. Myers, The Art of Software Testing (John Wiley & Sons, Inc., 1979). 

8

Joint Financial Management Improvement Program, White Paper: Financial Systems 

Data Conversion–Considerations (Washington, D.C.: Dec. 20, 2002).

9

Data conversion is defined as the modification of existing data to enable it to operate with 

similar functional capability in a different environment.

10JFMIP was originally formed under the authority of the Budget and Accounting 

Procedures Act of 1950 and was a joint and cooperative undertaking of GAO, the

Department of the Treasury, the Office of Management and Budget (OMB), and the Office 

of Personnel Management (OPM), working in cooperation with each other to improve 

financial management practices in the federal government. In a December 2004 

memorandum, OMB announced a realignment of JFMIP’s responsibilities for financial 

management policy and oversight in the federal government. JFMIP ceased to exist as a 

separate organization, although the Principals will continue to meet at their discretion. 

Page 3 GAO-06-553T 
• Risk management. According to leading systems acquisition

organizations, risk management is a process for identifying potential 

problems before they occur and adjusting the acquisition to decrease the 

chance of their occurrence. Risks should be identified as early as possible 

and a risk management process should be developed and put in place. 

Risks should be identified, analyzed, mitigated, and tracked to closure. 

Effectively managing risks is one way to minimize the chances of project

cost, schedule, and performance problems from occurring. We have 

reported that agencies have not fully implemented effective risk 

management practices, including shortcomings in identifying and tracking 

risks. 

• Project management. Effective project management is the process for 

planning and managing all project-related activities, such as defining how 

components are interrelated, defining tasks, estimating and obtaining 

resources, and scheduling activities. Project management allows the 

performance, cost, and schedule of the overall program to be continually

measured, compared with planned objectives, and controlled. We have

reported on a number of project management problems including 

inadequate project management structure, schedule-driven projects, and 

lack of performance metrics and oversight. 

• Quality assurance. Quality assurance provides independent assessments 

of whether management process requirements are being followed and 

whether product standards and requirements are being satisfied. This 

process includes, among other things, the use of independent verification 

and validation (IV&V). We and others have reported on problems related 

to agencies’ use of IV&V including specific functions not being performed 

by the IV&V, the IV&V contractor not being independent, and IV&V 

recommendations not being implemented. 

Inadequate implementation of disciplined processes can manifest itself in 

many ways when implementing a financial management system. While full 

deployment has been delayed at some agencies, specific functionality has 

been delayed or flawed at other agencies. The following examples 

illustrate some of the recurring problems related to the lack of disciplined 

processes in implementing financial management systems. 

Page 4 GAO-06-553T 
• In May 2004, we reported11 significant flaws in requirements management 

and testing that adversely affected the initial development and 

implementation of the Army’s Logistics Modernization Program (LMP), in 

which the Army estimated that it would invest about $1 billion. These 

flaws also hampered efforts to correct the operational difficulties 

experienced at the Tobyhanna Army Depot. In June 2005, we reported12

that the Army had not effectively addressed its requirements management 

and testing problems, and data conversion weaknesses had hampered the 

Army’s ability to address the problems that needed to be corrected before 

the system could be fielded to other locations. The Army lacked 

reasonable assurance that (1) system problems experienced during the 

initial deployment and causing the delay of future deployments had been

corrected and (2) LMP was capable of providing the promised system 

functionality. Subsequent deployments of the system have been delayed. 

• We reported13 in February 2005 that our experience with major systems 

acquisitions, such as the Office of Personnel Management’s (OPM) 

Retirement Systems Modernization (RSM) program, has shown that having 

sound disciplined processes in place increases the likelihood of the 

acquisitions meeting cost and schedule estimates as well as performance 

requirements. However, we found that many of the processes in these 

areas for RSM were not sufficiently developed, were still under 

development, or were planned for future development. For example, OPM 

lacked needed processes for developing and managing requirements, 

planning and managing project activities, managing risks, and providing 

sound information to investment decision makers. Without these 

processes in place, RSM was at increased risk of not being developed and 

delivered on time and within budget and falling short of promised 

capabilities. 

 11GAO, DOD Business Systems Modernization: Billions Continue to Be Invested with

Inadequate Management Oversight and Accountability, GAO-04-615 (Washington, D.C.: 

May 27, 2004). 

12GAO, Army Depot Maintenance: Ineffective Oversight of Depot Maintenance Operations

and System Implementation Efforts, GAO-05-441 (Washington, D.C.: June 30, 2005). 

13GAO, Office of Personnel Management: Retirement Systems Modernization Program

Faces Numerous Challenges, GAO-05-237 (Washington, D.C.: Feb. 28, 2005). 

Page 5 GAO-06-553T 
• In August 2004, the Department of Veterans Affairs (VA) IG reported14 that 

the effect of transferring inaccurate data to VA’s new core financial system 

at a pilot location interrupted patient care and medical center operations. 

This raised concerns that similar conversion problems would occur at 

other VA facilities if the conditions identified were not addressed and 

resolved nationwide prior to roll out. Some of the specific conditions the 

IG noted were that contracting and monitoring of the project were not 

adequate, and the deployment of the new system encountered multiple 

problems, including those related to software testing, data conversion and 

system interfaces, and project management. As a result of these problems, 

patient care was interrupted by supply outages and other problems. The 

inability to provide sterile equipment and needed supplies to the operating 

room resulted in the cancelation of 81 elective surgeries for a week in both 

November 2003 and February 2004. In addition, the operating room was 

forced to operate at two-thirds of its prior capacity. Because of the serious 

nature of the problems raised with the new system, VA management 

decided to focus on transitioning back to the previous financial 

management software at the pilot location and assembled a senior 

leadership team to examine the results of the pilot and make

recommendations to the VA Secretary regarding the future of the system. 

We are concerned that federal agencies’ human capital problems are 

eroding the ability of many agencies—and threatening the ability of 

others—to perform their IT missions economically, efficiently, and 

effectively. For example, we found15 that in the 1990s, the initial rounds of 

downsizing were set in motion without considering the longer-term effects 

on agencies’ IT performance capacity. Additionally, a number of individual

agencies drastically reduced or froze their hiring efforts for extended 

periods. Consequently, following a decade of downsizing and curtailed 

investments in human capital, federal agencies currently face skills, 

knowledge, and experience imbalances, especially in their IT workforces. 

Without corrective action, these imbalances will worsen, especially in light 

of the numbers of federal civilian workers becoming eligible to retire in 

the coming years. In this regard, we are emphasizing the need for 

Human Capital 

Management Problems 

Impede Financial Systems 

Development and 

Deployment 

 14Department of Veterans Affairs Office of Inspector General, Issues at VA Medical Center

Bay Pines, Florida and Procurement and Deployment of the Core Financial and 

Logistics System, Report 04-01371-177 (Washington, D.C.: Aug. 11, 2004). 

15GAO, Human Capital: Building the Information Technology Workforce to Achieve 

Results, GAO-01-1007T (Washington, D.C.: July 31, 2001). 

Page 6 GAO-06-553T 
additional focus on the following three key elements of human capital 

management. 

• Strategic workforce planning. Having staff with the appropriate skills is 

key to achieving financial management improvements, and managing an

organization’s employees is essential to achieving results. It is important 

that agencies incorporate strategic workforce planning by (1) aligning an 

organization’s human capital program with its current and emerging 

mission and programmatic goals and (2) developing long-term strategies 

for acquiring, developing, and retaining an organization’s total workforce 

to meet the needs of the future. This incorporates a range of activities 

from identifying and defining roles and responsibilities, to identifying team 

members, to developing individual competencies that enhance 

performance. We have reported on agencies without a sufficient human 

capital strategy or plan, skills gap analysis, or training plans.

• Human resources. Having sufficient numbers of people on board with 

the right mix of knowledge and skills can make the difference between 

success and failure. This is especially true in the IT area, where 

widespread shortfalls in human capital have contributed to demonstrable 

shortfalls in agency and program performance. We have found agency 

projects with significant human resource challenges, including addressing

personnel shortages, filling key positions, and developing and retaining 

staff with the required competencies. 

• Change management. According to leading IT organizations, 

organizational change management is the process of preparing users for 

the business process changes that will accompany implementation of a 

new system. An effective organizational change management process 

includes project plans and training that prepare users for impacts the new

system might have on their roles and responsibilities and a process to 

manage those changes. We have reported on various problems with 

agencies’ change management, including transition plans not being 

developed, business processes not being reengineered, and customization 

not being limited. 

The following examples illustrate some of the recurring problems related 

to human capital management in implementing financial management 

systems. 

Page 7 GAO-06-553T 
• We first reported in February 200216 that the Internal Revenue Service 

(IRS) had not defined or implemented an IT human capital strategy for its

Business Systems Modernization (BSM) program and recommended that 

IRS address this weakness. In June 2003, we reported17 that IRS had made 

important progress in addressing our recommendation, but had yet to 

develop a comprehensive multiyear workforce plan. IRS also had not 

hired, developed, or retained sufficient human capital resources with the 

required competencies, including technical skills, in specific mission 

areas. In September 2003, the Treasury Inspector General for Tax 

Administration reported18 that IRS’s Modernization and IT Services 

organization had made significant progress in developing its human capital 

strategy but had not yet (1) identified and incorporated human capital 

asset demands for the modernized organization, (2) developed detailed

hiring and retention plans, or (3) established a process for reviewing the 

human capital strategy development and monitoring its implementation. 

We most recently reported in July 200519 that IRS had taken some steps in 

the right direction. However, until IRS fully implements its strategy, it will 

not have all of the necessary IT knowledge and skills to effectively manage 

the BSM program or to operate modernized systems. Consequently, the

risk of BSM program and project cost increases, schedule slippages, and 

performance problems is increased.

• We reported, in September 2004,20 that staff shortages and limited strategic 

workforce planning resulted in the Department of Health and Human 

Services (HHS) not having the resources needed to effectively design and

operate its new financial management system. HHS had taken the first 

 16GAO, Business Systems Modernization: IRS Needs to Better Balance Management 

Capacity with Systems Acquisition Workload, GAO-02-356 (Washington, D.C.: Feb. 28, 

2002). 

17GAO, Business Systems Modernization: IRS Has Made Significant Progress in

Improving Its Management Controls, but Risks Remain, GAO-03-768 (Washington, D.C.: 

June 27, 2003). 

18Treasury Inspector General for Tax Administration, The Modernization, Information 

Technology and Security Services Organization Needs to Take Further Action to 

Complete Its Human Capital Strategy, Reference Number 2003-20-209 (Washington, D.C.: 

Sept. 22, 2003). 

19GAO, Business Systems Modernization: Internal Revenue Service’s Fiscal Year 2005 

Expenditure Plan, GAO-05-774 (Washington, D.C.: July 22, 2005). 

20GAO, Financial Management Systems: Lack of Disciplined Processes Puts 

Implementation of HHS’s Financial System at Risk, GAO-04-1008 (Washington, D.C.: 

Sept. 23, 2004). 

Page 8 GAO-06-553T 
steps in strategic workforce planning. For example, the Centers for 

Disease Control and Prevention (CDC), where the first deployment was 

scheduled, was the only operating division that had prepared a 

competency report, but a skills gap analysis and training plan for CDC had 

not been completed. In addition, many government and contractor 

positions on the implementation project were not filled as planned. While 

HHS and the systems integrator had taken measures to acquire additional 

human resources for the implementation of the new financial management 

system, we concluded that scarce resources could significantly jeopardize 

the project’s success and lead to several key deliverables being 

significantly behind schedule. In September 2004, HHS decided to delay its 

first scheduled deployment at CDC by 6 months in order to address these 

and other issues. 

DHS faces unique challenges in attempting to develop integrated financial 

management systems across the breadth of such a large and diverse 

department. DHS was established by the Homeland Security Act of 2002,21

as the 15th Cabinet Executive Branch Department of the United States 

government. DHS inherited a myriad of redundant financial management 

systems from 22 diverse agencies along with 180,000 employees, about 100 

resource management systems, and 30 reportable conditions22 identified in 

prior component financial audits. Of the 30 reportable conditions, 18 were 

so severe they were considered material weaknesses.23 Among these 

weaknesses were insufficient internal controls or processes to reliably 

report financial information such as revenue, accounts receivable, and 

accounts payable; significant system security deficiencies; financial 

systems that required extensive manual processes to prepare financial 

statements; and incomplete policies and procedures necessary to 

complete basic financial management activities. 

DHS Faces Serious 

Financial 

Management 

Challenges 

 21Pub. L. No. 107-296, § 101(a), 116 Stat. 2135, 2142 (Nov. 25, 2002) (codified at 6 U.S.C. § 

111(a)). 

22Under standards issued by the American Institute of Certified Public Accountants, 

“reportable conditions” are matters coming to the auditors’ attention relating to significant 

deficiencies in the design or operation of internal control that, in the auditors’ judgment, 

could adversely affect the department’s ability to record, process, summarize, and report 

financial data consistent with the assertions of management in the financial statements. 

23Material weaknesses are reportable conditions in which the design or operation of one or 

more of the internal control components does not reduce to a relatively low level the risk 

that misstatements in amounts that would be material in relation to the financial 

statements being audited may occur and not be detected within a timely period by

employees in the normal course of performing their assigned functions. 

Page 9 GAO-06-553T 
DHS received a disclaimer of opinion on its financial statements for fiscal 

year 2005,24 and the independent auditors also reported that DHS’s 

financial management systems did not substantially comply with the 

requirements of FFMIA. The disclaimer was primarily due to financial

reporting problems at five components. The five components include 

Immigration and Customs Enforcement (ICE), the United States Coast 

Guard (Coast Guard), State and Local Government Coordination and 

Preparedness (SLGCP),25 the Transportation Security Administration 

(TSA), and Emergency Preparedness and Response (EPR). Further, ICE is 

an accounting service provider for other DHS components, and it failed to

adequately maintain both its own accounting records and those of other 

DHS components during fiscal year 2005. 

The auditors’ fiscal year 2005 report discusses 10 material weaknesses, 

two other reportable conditions in internal control, and instances of 

noncompliance with seven laws and regulations. Among the 10 material 

weaknesses were inadequate financial management and oversight at DHS 

components, primarily ICE and Coast Guard; decentralized financial 

reporting at the component level; significant general IT and application 

control weaknesses over critical financial and operational data; and the 

lack of accurate and timely reconciliation of fund balance with treasury 

accounts. The results of the auditors’ tests of fiscal year 2005 compliance 

with certain provisions of laws, regulations, contracts, and grant 

agreements disclosed instances of noncompliance. The DHS auditors 

reported instances of noncompliance with 

• 31 U.S.C. § 3512(c),(d), commonly known as the Federal Managers’ 

Financial Integrity Act of 1982 (FMFIA); 

• the Federal Financial Management Improvement Act of 1996 (FFMIA), 

Pub. L. No. 104-208, div. A, § 101(f), title VIII, 110 Stat. 3009, 3009-389 

(Sept. 30, 1996); 

• the Federal Information Security Management Act of 2002 (FISMA), Pub. 

L. No. 107-347, title III, 116 Stat. 2899, 2946 (Dec. 17, 2002); 

 24Office of Inspector General, Independent Auditors’ Report on DHS’ FY 2005 Financial

Statements (Nov. 15, 2005). 

25SLGCP has since been succeeded by the Office of Grants and Training (G&T) within the

DHS Preparedness Directorate.

Page 10 GAO-06-553T 
• the Single Audit Act, as amended (codified at 31 U.S.C. §§ 7501-7507), and 

other laws and regulations related to OMB Circular No. A-50, Audit 

Follow-up, as revised (Sept. 29, 1982);

• the Improper Payments Information Act of 2002, Pub. L. No. 107-300, 116 

Stat. 2350 (Nov. 26, 2002); 

• the Department of Homeland Security Financial Accountability Act of 

2004, Pub. L. No. 108-330, 118 Stat. 1275 (Oct. 16, 2004); and 

• the Government Performance and Results Act of 1993 (GPRA), Pub. L. No. 

103-62, 107 Stat. 285 (Aug. 3, 1993).

Although DHS inherited many of the reportable conditions and 

noncompliance issues discussed above, the department’s top management, 

including the CFO, is ultimately responsible for ensuring that progress is 

made in the area of financial management. 

In August 2003, DHS began the “electronically Managing enterprise 

resources for government effectiveness and efficiency” (eMerge2

) program 

at an estimated cost of $229 million. The eMerge2

 program was supposed 

to provide DHS with the financial system functionality to consolidate and 

integrate the department’s financial accounting and reporting systems, 

including budget, accounting and reporting, cost management, asset 

management, and acquisition and grants functions. According to DHS 

officials, a systems integrator was hired in December 2003, and the project 

was expected to be fully deployed and operational in 2006. In July 2004, 

we reported26 that the acquisition of eMerge2

 was in the early stages and 

continued focus and follow through, among other things, would be 

necessary for it to be successful. 

According to DHS officials, because the project was not meeting its 

performance goals and timeline, DHS officials began considering whether 

to continue the project and in Spring 2005 started looking at another 

strategy. DHS officials told us they decided to change the strategy for its 

eMerge2

 program in October 2005, and focus on leveraging the systems 

already in place. The revised strategy will allow DHS components to 

choose from an array of existing financial service providers. DHS officials 

said that by January 2006, after spending a reported $15.2 million, 

 26GAO, Financial Management: Department of Homeland Security Faces Significant 

Financial Management Challenges, GAO-04-774 (Washington, D.C.: July 19, 2004). 

Page 11 GAO-06-553T 
acquisition and development activities on eMerge2

 had stopped and the 

blanket purchase agreement with the systems integrator expired. DHS 

officials added that the eMerge2

 project would not be renamed. However, 

DHS plans to continue eMerge2

 using a shared services approach, which 

allows its components to choose among three DHS providers of financial

management services27 and the Department of the Treasury’s Bureau of the 

Public Debt, which was identified by OMB as a governmentwide financial 

management center of excellence. DHS officials told us that although a 

departmentwide concept of operations and migration plan were still under 

development, they expected progress to be made in the next 5 years. As 

we will discuss later, a departmentwide concept of operations document 

would help DHS and others understand such items as how DHS will 

migrate the various entities to these shared service providers and how it 

will obtain the departmental information necessary to manage the agency 

from these disparate operations. DHS officials acknowledged that they 

needed to first address the material weaknesses at the proposed shared 

service providers before component agencies migrate to them. 

The key for federal agencies, including DHS, to avoid the long-standing 

problems that have plagued financial management system improvement 

efforts is to address the foremost causes of those problems and adopt 

solutions that reduce the risks associated with these efforts to acceptable

levels. Although it appears that DHS will adopt a shared services approach 

to meet its needs for integrated financial management systems, 

implementing this approach will be complex and challenging, making the 

adoption of best practices even more important for this undertaking. 

Based on industry best practices, we identified four key concepts that will 

be critical to DHS’s ability to successfully complete its planned migration 

to shared service providers. Careful consideration of these four concepts,

each one building upon the next, will be integral to the success of DHS’s 

strategy. The four concepts are (1) developing a concept of operations, 

(2) defining standard business processes, (3) developing a migration 

strategy for DHS components, and (4) defining and effectively 

implementing disciplined processes necessary to properly manage the 

specific projects. We will now highlight the key issues to be considered for 

each of the four areas. 

The Building Blocks 

of Successful 

Financial 

Management System 

Implementations 

 27The three proposed DHS shared service providers are Customs and Border Protection,

Coast Guard, and Federal Law Enforcement Training Center. 

Page 12 GAO-06-553T 
As we discussed previously, a concept of operations defines how an 

organization’s day-to-day operations are (or will be) carried out to meet 

mission needs. The concept of operations includes high-level descriptions 

of information systems, their interrelationships, and information flows. It 

also describes the operations that must be performed, who must perform 

them, and where and how the operations will be carried out. Further, it 

provides the foundation on which requirements definitions and the rest of

the systems planning process are built. Normally, a concept of operations 

document is one of the first documents to be produced during a 

disciplined development effort and flows from both the vision statement 

and the enterprise architecture. According to the Institute of Electrical and 

Electronic Engineers (IEEE) standards,28 a concept of operations is a useroriented document that describes the characteristics of a proposed system 

from the users’ viewpoint. The key elements that should be included in a 

concept of operations are major system components, interfaces to 

external systems, and performance characteristics such as speed and

volume. 

Another key element of a concept of operations is a transition strategy that 

is useful for developing an understanding of how and when changes will 

occur. Not only is this needed from an investment management point of 

view, it is a key element in the human capital problems discussed 

previously that revolved around change management strategies. 

Describing how to implement DHS’s approach for using shared service 

providers for its financial management systems, as well as the process that 

will be used to deactivate legacy systems that will be replaced or 

interfaced with a new financial management system, are key aspects that 

need to be addressed in a transition strategy. 

Concept of Operations 

Provides Foundation 

 28IEEE Std. 1362-1998. The IEEE is a nonprofit, technical professional association that

develops standards for a broad range of global industries, including the IT and information

assurance industries and is a leading source for defining best practices. 

Page 13 GAO-06-553T 
Key Issues for DHS to Consider 

• What is considered a financial management system? Are all the components using a 

standard definition? 

• Who will be responsible for developing a DHS-wide concept of operations, and what 

process will be used to ensure that the resulting document reflects the 

departmentwide solution rather than individual component agency stove-piped 

efforts? 

• How will DHS’s concept of operations be linked to its enterprise architecture? 

• How can DHS obtain reliable information on the costs of its financial management 

systems investments? 

Standard Business 

Processes Promote 

Consistency 

Business process models provide a way of expressing the procedures, 

activities, and behaviors needed to accomplish an organization’s mission 

and are helpful tools to document and understand complex systems. 

Business processes are the various steps that must be followed to perform 

a certain activity. For example, the procurement process would start when 

the agency defines its needs, and issues a solicitation for goods or 

services, and would continue through contract award, receipt of goods 

and services, and would end when the vendor properly receives payment. 

The identification of preferred business processes would be critical for 

standardization of applications and training and portability of staff. 

To maximize the success of a new system acquisition, organizations need

to consider the redesign of current business processes. As we noted in our 

Executive Guide: Creating Value Through World-class Financial 

Management,

29 leading finance organizations have found that productivity 

gains typically result from more efficient processes, not from simply 

automating old processes. Moreover, the Clinger-Cohen Act of 1996

requires agencies to analyze the missions of the agency and, based on the 

analysis, revise mission-related and administrative processes, as 

appropriate, before making significant investments in IT used to support 

those missions.30 Another benefit of what is often called business process 

modeling is that it generates better system requirements, since the 

business process models drive the creation of information systems that fit 

in the organization and will be used by end users. Other benefits include 

providing a foundation for agency efforts to describe the business 

 29GAO, Executive Guide: Creating Value Through World-class Financial Management, 

GAO/AIMD-00-134 (Washington, D.C.: April 2000). 

30See 40 U.S.C. § 11303(b)(2)(C).

Page 14 GAO-06-553T 
processes needed for unique missions, or developing subprocesses to 

support those at the departmentwide level. 

Key Issues for DHS to Consider 

• Who will be responsible for developing DHS-wide standard business processes that 

meet the needs of its component agencies? 

• How will the component agencies be encouraged to adopt new processes, rather 

than selecting other methods that result in simply automating old ways of doing 

business? 

• How will the standard business processes be implemented by the shared service 

providers to provide consistency across DHS? 

• What process will be used to determine and validate the processes needed for DHS 

agencies that have unique needs? 

Strategy for Implementing 

the Financial Management 

Shared Services Approach 

Will Be Key 

Although DHS has a goal of migrating agencies to a limited number of 

shared service providers, it has not yet articulated a clear and measurable 

strategy for achieving this goal. In the context of migrating to shared 

service providers, critical activities include (1) developing specific criteria 

for requiring component agencies to migrate to one of the providers rather 

than attempting to develop and implement their own stove-piped business 

systems; (2) providing the necessary information for a component agency 

to make a selection of a shared service provider for financial management; 

(3) defining and instilling new values, norms, and behaviors within 

component agencies that support new ways of doing work and 

overcoming resistance to change; (4) building consensus among 

customers and stakeholders on specific changes designed to better meet 

their needs; and (5) planning, testing, and implementing all aspects of the 

transition from one organizational structure and business process to 

another. 

Finally, sustained leadership will be key to a successful strategy for 

moving DHS components towards consolidated financial management 

systems. In our Executive Guide: Creating Value Through World-class 

Financial Management, we found that leading organizations made 

financial management improvement an entitywide priority by, among 

other things, providing clear, strong executive leadership. We also 

reported that making financial management a priority throughout the 

federal government involves changing the organizational culture of federal 

agencies. Although the views about how an organization can change its 

culture can vary considerably, leadership (executive support) is often 

viewed as the most important factor in successfully making cultural 

changes. Top management must be totally committed in both words and 

actions to changing the culture, and this commitment must be sustained 

Page 15 GAO-06-553T 
and demonstrated to staff. As pressure mounts to do more with less, to 

increase accountability, and to reduce fraud, waste, abuse, and 

mismanagement, and efforts to reduce federal spending intensify, 

sustained and committed leadership will be a key factor in the successful 

implementation of DHS’s financial management systems. 

Key Issues for DHS to Consider 

• What guidance will be provided to assist DHS component agencies in adopting a 

change management strategy that reduces the risks of moving to a shared service 

provider? 

• What processes will be put in place to ensure that individual component agency 

financial management system investment decisions focus on the benefits of standard 

processes and shared service providers? 

• What process will be used to facilitate the decision-making process used by

component agencies to select a provider? 

• How will component agencies incorporate strategic workforce planning in the 

implementation of the shared service provider approach? 

Disciplined Processes Will 

Help Ensure Successful 

Implementation 

Once the concept of operations and standard business processes have 

been defined and a migration strategy is in place, the use of disciplined 

processes, as discussed previously, will be a critical factor in helping to 

ensure that the implementation is successful. The key to avoiding longstanding implementation problems is to provide specific guidance to 

component agencies for financial management system implementations, 

incorporating the best practices identified by the Software Engineering 

Institute, the IEEE, the Project Management Institute, and other experts 

that have been proven to reduce risk in implementing systems. Such 

guidance should include the various disciplined processes such as 

requirements management, testing, data conversion and system interfaces, 

risk and project management, and related activities, which have been 

problematic in the financial systems implementation projects we and 

others have reviewed. 

Disciplined processes have been shown to reduce the risks associated 

with software development and acquisition efforts to acceptable levels and

are fundamental to successful system implementations. The principles of 

disciplined IT systems development and acquisition apply to shared 

services implementation, such as that contemplated by DHS. A disciplined

software implementation process can maximize the likelihood of 

achieving the intended results (performance) within established resources 

(costs) on schedule. For example, disciplined processes should be in place 

to address the areas of data conversion and interfaces, two of the many 

critical elements necessary to successfully implement a new system—the

Page 16 GAO-06-553T 
lack of which have contributed to the failure of previous agency efforts. 

Further details on disciplined processes can be found in appendix III of 

our recently issued report.31

Key Issues for DHS to Consider 

• How can existing industry standards and best practices be incorporated into DHSwide guidance related to financial management system implementation efforts, 

including migrating to shared service providers? 

• What actions will be taken to reduce the risks and costs associated with data 

conversion and interface efforts? 

• What oversight process will be used to ensure that modernization efforts effectively 

implement the prescribed policies and procedures? 

In closing, the best practices we identified are interrelated and 

interdependent, collectively providing an agency with a better outcome for 

its system deployment—including cost savings, improved service and 

product quality, and ultimately, a better return on investment. The 

predictable result of DHS and other agencies not effectively addressing 

these best practices is projects that do not meet cost, schedule, and 

performance objectives. There will never be a 100 percent guarantee that a 

new system will be fully successful from the outset. However, risk can be 

managed and reduced to acceptable levels through the use of disciplined 

processes, which in short represent best practices that have proven their

value in the past. We view the application of disciplined processes to be 

essential for DHS’s systems modernization efforts. Based on industry best 

practices, the following four concepts would help ensure a sound 

foundation for developing and implementing a DHS-wide solution for the 

complex financial management problems it currently faces: (1) developing

a concept of operations that expresses DHS’s view of financial 

management and how that vision will be realized, (2) defining standard 

business processes, (3) developing an implementation strategy, and 

(4) defining and effectively implementing applicable disciplined processes. 

If properly implemented, the best practices discussed here today and in 

our recently issued report32 will help reduce the risk associated with a 

project of this magnitude and importance to an acceptable level. With DHS 

at an important crossroads in the implementation of the eMerge2

 program, 

it has the perfect opportunity to use these building blocks to form a solid 

Concluding 

Observations 

 31GAO-06-184. 

32GAO-06-184. 

Page 17 GAO-06-553T 
foundation on which to base its efforts and avoid the problems that have 

plagued so many other federal agencies faced with the same challenge. 

Mr. Chairmen, this concludes our prepared statement. We would be happy 

to respond to any questions you or other Members of the Subcommittees 

may have at this time. 

For information about this testimony, please contact McCoy Williams, 

Director, Financial Management and Assurance, at (202) 512-9095 or at 

williamsm1@gao.gov, or Keith A. Rhodes, Chief Technologist, Applied 

Research and Methods, who may be reached at (202) 512-6412 or at 

rhodesk@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this 

testimony. Individuals who made key contributions to this testimony 

include Kay Daly, Assistant Director; Chris Martin, Senior-Level 

Technologist; Francine DelVecchio; Mike LaForge; and Chanetta Reed.

Numerous other individuals made contributions to the GAO reports cited 

in this testimony. 

Page 18 GAO-06-553T 

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