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BUSINESS PROCESS MODERNIZATION AT THE

DEPARTMENT OF DEFENSE

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,

AND FINANCIAL MANAGEMENT

AND THE

SUBCOMMITTEE ON NATIONAL SECURITY,

EMERGING THREATS AND INTERNATIONAL

RELATIONS

OF THE

COMMITTEE ON GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JULY 7, 2004

Serial No. 108–229

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

MARSHA BLACKBURN, Tennessee

PATRICK J. TIBERI, Ohio

KATHERINE HARRIS, Florida

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

BETTY MCCOLLUM, Minnesota

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director/Communications Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY AND FINANCIAL MANAGEMENT

TODD RUSSELL PLATTS, Pennsylvania, Chairman

MARSHA BLACKBURN, Tennessee

STEVEN C. LATOURETTE, Ohio

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

KATHERINE HARRIS, Florida

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

CAROLYN B. MALONEY, New York

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

MIKE HETTINGER, Staff Director

LARRY BRADY, Professional Staff Member

ADAM BORDES, Minority Professional Staff Member

(III)

SUBCOMMITTEE ON NATIONAL SECURITY, EMERGING THREATS AND INTERNATIONAL

RELATIONS

CHRISTOPHER SHAYS, Connecticut, Chairman

MICHAEL R. TURNER, Ohio

DAN BURTON, Indiana

STEVEN C. LATOURETTE, Ohio

RON LEWIS, Kentucky

TODD RUSSELL PLATTS, Pennsylvania

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

TIM MURPHY, Pennsylvania

KATHERINE HARRIS, Florida

DENNIS J. KUCINICH, Ohio

TOM LANTOS, California

BERNARD SANDERS, Vermont

STEPHEN F. LYNCH, Massachusetts

CAROLYN B. MALONEY, New York

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

JOHN F. TIERNEY, Massachusetts

DIANE E. WATSON, California

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

LAWRENCE J. HALLORAN, Staff Director and Counsel

J. VINCENT CHASE, Chief Investigator

ROBERT A. BRIGGS, Clerk

ANDREW SU, Minority Professional Staff Member

(V)

C O N T E N T S

Page

Hearing held on July 7, 2004 ................................................................................. 1

Statement of:

Lanzilotta, Lawrence, Under Secretary of Defense and Acting Comptroller, Department of Defense; and Greg Kutz, Director, Financial Management and Assurance, General Accounting Office, accompanied by

Keith A. Rhodes, Chief Technologist, Applied Research and Methodology, Center for Engineering and Technology .............................................. 10

Letters, statements, etc., submitted for the record by:

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio, prepared statement of .................................................................... 88

Kutz, Greg, Director, Financial Management and Assurance, General

Accounting Office, prepared statement of ................................................... 18

Lanzilotta, Lawrence, Under Secretary of Defense and Acting Comptroller, Department of Defense, prepared statement of ................................... 13

Platts, Hon. Todd Russell, a Representative in Congress from the State

of Pennsylvania, prepared statement of ...................................................... 3

Shays, Hon. Christopher, a Representative in Congress from the State

of Connecticut, prepared statement of ........................................................ 69

Towns, Hon. Edolphus, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 6

(1)

BUSINESS PROCESS MODERNIZATION AT THE

DEPARTMENT OF DEFENSE

WEDNESDAY, JULY 7, 2004

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOV- ERNMENT EFFICIENCY AND FINANCIAL MANAGEMENT, JOINT WITH THE SUBCOMMITTEE ON NATIONAL SECU- RITY, EMERGING THREATS AND INTERNATIONAL RELA- TIONS, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittees met, pursuant to notice, at 2 p.m., in room

2247, Rayburn House Office Building, Hon. Todd R. Platts (chairman of the Subcommittee on Government Efficiency and Financial

Management) presiding.

Present: Representatives Platts, Shays, Towns, Watson,

Blackburn, Kanjorski, Tierney, and Ruppersberger.

Staff present: Lawrence Halloran, staff director and counsel; J.

Vincent Chase, chief investigator; Robert Briggs, clerk; Mike

Hettinger, staff director; Larry Brady and Tabetha Mueller, professional staff members; Amy Laudeman, legislative assistant; Adam

Bordes and Andrew Su, minority professional staff members; and

Jean Gosa, assistant clerk.

Mr. PLATTS. This joint hearing of the Subcommittees on Government Efficiency and Financial Management and National Security,

Emerging Threats and International Relations will come to order.

I would first like to thank our witnesses here today as well as

your staff for your written testimony you have prepared and we

look forward to your oral testimony and our chance to have Q&A

with you.

We are here today to discuss business processes at the Department of Defense. Today, we will review the status of the overall

modernization effort. My committee, the Government Efficiency

and Financial Management Subcommittee will conduct a followup

hearing in 2 weeks from yesterday, July 20, to review some specific

problems with Army Reservist pay.

The Department of Defense is the largest and most unique entity in the entire world with over $1 trillion in assets, a work force of

3.3 million and disbursements of over $400 billion. DOD has a

worldwide presence of nearly 500,000 military and civilian personnel deployed across the globe. To support its operations, the Department relies on more than 2,000 business systems. As I think

we will hear in Mr. Lanzilotta’s testimony, it is actually over 4,000

and counting, everything from accounting and logistics to procurement and personnel. Nearly $19 billion was requested in 2004 to

maintain and modernize these systems. The inherent challenge is

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that these systems are not integrated and regardless of the amount

of investment, the fact remains that until these systems are integrated, they will not function effectively.

The Business Management Modernization Program launched in

2001 is an aggressive, bold attempt to achieve this important goal.

This hearing will discuss the progress being made in implementing

BMMP and the remaining challenges that need to be overcome before DOD will have integrated systems in place that produce timely, reliable data.

While we continue to hope that DOD will achieve a clean audit

opinion in 2007, as has been projected, there is much more at stake

here. Problems with business systems are starting to have an impact on the Department’s mission. Over the past 2 years, we have

heard from the General Accounting Office about serious problems

relating to financial management and business systems—chem bio

suits unaccounted for, soldier’s not receiving the right compensation, vehicles cannibalized for parts because of inadequate supply

systems. These instances are troubling because they hinder operational effectiveness and the ability of our troops in the field to fulfill their important missions. Congress has the responsibility to see

that these problems are addressed and that is the reason my subcommittee scheduled a followup hearing to look at the military pay

issue in greater detail.

While it is important to fix these problems as soon as possible,

we need a solution, the right solution for the long term. These are

the concerns that must be balanced as the Department moves forward with the broad based reforms envisioned in the BMMP.

Today, we are proud to have with us and glad to hear from first,

Larry Lanzilotta, Acting Under Secretary of Defense and Comptroller, Department of Defense. We appreciate your being with us

again. We also have Mr. Greg Kutz, Director of Financial Management and Assurance, General Accounting Office. Mr. Kutz will be

joined during the question and answer period by Mr. Keith Rhodes

from the General Accounting Office. We appreciate all three of you

being with us as well as your staff and their work in preparing for

this hearing.

[The prepared statement of Hon. Todd Russell Platts follows:]

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Mr. PLATTS. I would now like to yield to our ranking member

from New York, Mr. Towns, for the purpose of an opening statement.

Mr. TOWNS. Thank you, Mr. Chairman.

In March of this year, the subcommittee held a hearing on the

consolidated financial statements of the U.S. Government. It was

clear from that hearing that while many Federal agencies continue

to improve in their compliance with the financial management requirements, the Department of Defense continues to fail in demonstrating adequate financial accounting and internal control practices. Furthermore, quantifying the problems at DOD remains a

challenge due to the extensive amount of money involved as well

as the complexity involving its many financial management programs.

The Defense Department receives approximately one-half of the

discretionary budget of the United States each year with an annual

allocation of about $400 billion, assets valued at over $1 trillion

and approximately 3 million military and civilian employees. Within these totals, DOD spends approximately $18 billion annually on

information technology and upgrades to its roughly 2,300 agencywide business systems. Despite these resources, its financial management system practices and procedures are hampered by critical

weaknesses and minimal oversight.

Since 1995, GAO has designated the financial management system at DOD as high risk because they are vulnerable to waste,

fraud and abuse. Once again, as has been the case for the last 8

years, the Inspector General of the Department of Defense could

not provide an opinion on the agency’s financial statements. Such

widespread chronic, financial and internal control problems have

hindered all of DOD’s major components and programs from

achieving a clean independent financial audit.

Specific challenges facing DOD include: the lack of adequate doc- umentation for nearly $1 trillion in asset holdings, including both

weapons systems and support equipment; complete and reliable information on its environmental liabilities under Federal law; and

structural accounting procedures resulting in extensive under and

over payment to contractors. While not exhaustive, the problems I

have mentioned are longstanding in nature and will require extensive changes within the operations and culture of DOD in order to

be remedied.

In 1995, the DOD Inspector General testified before Congress

that a turnaround in the Pentagon’s financial management practices might be expected by the year 2000—2000 has long gone.

Nearly a decade later, DOD has yet to demonstrate such progress

and it remains unclear how much longer it will take for us to realize our goal of a clean agency audit.

As we continue to allocate the necessary resources to support our

troops abroad and define the long term needs of our military, it is

imperative for us to ensure that such funding is used effectively

and appropriately. The achievement of a clean agency audit will

provide evidence that our efforts are working.

Mr. Chairman, thank you again for holding this hearing. I know

I have no time to yield back, but I will yield.

[The prepared statement of Hon. Edolphus Towns follows:]

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Mr. PLATTS. Thank you, Mr. Towns.

We will proceed to our witnesses testimony. If I could ask our

two witnesses and your staff to stand and take the oath before we

begin.

[Witnesses sworn.]

Mr. PLATTS. We appreciate your written testimony. We are going

to try to stay with the 5-minute opening statements if you want to

summarize and then get into a give and take on the question and

answers.

Mr. Lanzilotta, if you would like to begin?

STATEMENTS OF LAWRENCE LANZILOTTA, UNDER SECRETARY OF DEFENSE AND ACTING COMPTROLLER, DEPARTMENT OF DEFENSE; AND GREG KUTZ, DIRECTOR, FINANCIAL

MANAGEMENT AND ASSURANCE, GENERAL ACCOUNTING

OFFICE, ACCOMPANIED BY KEITH A. RHODES, CHIEF TECHNOLOGIST, APPLIED RESEARCH AND METHODOLOGY, CENTER FOR ENGINEERING AND TECHNOLOGY

Mr. LANZILOTTA. Thank you, Mr. Chairman and members of the

committee.

Thank you for this opportunity to discuss the Department of Defense business management. This will be one of my last hearings

before leaving the Department. I also want to give you my observations from the last 3 years of working on DOD management challenges.

Led by Secretary Rumsfeld, transforming DOD management has

been a top priority. Our overarching aim has been to achieve an

integrated environment of DOD business processes, supported by

systems that efficiently deliver relevant decisionmaking information to leaders and fulfill all financial management requirements.

My message today is, the Department of Defense has undertaken

an unprecedented, comprehensive and visionary transformation to

achieve this aim. We are making progress to correct weaknesses

and control business system investment. Strong and consistent congressional support of this transformation is vital to sustaining our

progress.

To transform DOD business management, the Department must

succeed with all three independent pillars of its strategy: overhaul

and integrate DOD business processes and systems throughout the

Department’s Business Management Modernization Program; refine and advance the financial improvement plans of the military

services and defense agencies to enable them to produce auditable

financial statements resulting in a clean audit opinion, and audit

line items on financial statements as they become ready for such

an audit by developing a capability to do so.

Each of these pillars is essential and must be advanced simultaneously. None can be stopped or slowed without hurting the

progress of the entire transformation. This transformation will not

only dramatically improve DOD’s business and financial management, it will also enable DOD leaders to make resource decisions

based on the best information and data obtainable. It enables the

Department to meet the Chief Financial Officers Act and other

legal requirements including satisfactory financial statements.

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During the last 3 years, the Department began its business management transformation and we have had substantial accomplishments. The Department established a progressively more comprehensive inventory of all DOD management systems; began to

build a blueprint or architecture to guide the transformation from

its current stovepiped conglomeration of DOD business systems

into an integrated environment of overhauled systems and processes; designed an incremental strategy to achieve our transformational goals and defined the focus for each increment; developed a governance process to provide strategic direction to oversee

transformation of business processes and systems so that they will

transcend organizational boundaries and become integrated; organized all major DOD business activities into six areas or domains

and designated an Under Secretary of Defense as a domain owner

to oversee each business area; established a portfolio management

process by which domain owners would oversee investment in information technology to ensure full integration of all DOD business

processes and systems; established a DOD Audit Committee to provide a concerted senior leadership focus to produce auditable financial statements resulting in a clean opinion; developed for individual reporting entities improvement plans that show planned improvements and milestones; and implemented additional discipline

in our quarterly reporting processes that have accelerated the preparation of our financial reports and elevated our commitment to

quality. More importantly, we developed a common set of shared

values for the Department to address this issue.

It is important to note that domain owners are responsible for

overseeing the transformation of business activities managed by

the military services and other DOD components. This governance

plan has already demonstrated that it can work and we are continuing to strengthen and expand it. Some observers do not believe

that we are moving fast enough, yet acknowledge that DOD is one

of the world’s largest and most complex organizations with huge

business transformational challenges.

The Department is in business transformation for the long term.

It will take years to fix our systematic problems which evolved over

several decades. DOD’s accomplishments over the last 3 years have

significantly benefited from both congressional and GAO support of

our comprehensive transformation initiative. In view of this strong

past support, we are concerned by the apparent contradictory direction given by the Congress in both House and Senate in the fiscal

year 2005 defense authorization bills. Both bills cut funding that

is essential to achieve transformation that everyone agrees is essential. The rationale seems to be that progress has been too slow,

yet funding cuts will make continued progress more difficult.

Besides funding cuts, both authorization bills propose radical

change in the role of domain owners. Changing the domain owner’s

role of oversight of business systems to being responsible for virtually all aspects of business systems. Today, the DOD approach

has given domain owners oversight responsibility using prescribed

architectural standards and business rules. This structure will enable domain owners to control business-related investment and ensure that standards are adhered to and move DOD business and

processes toward full integration. The complimentary nature of the

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domain process to traditional acquisition management enhances

our ability to meet service unique war fighting needs while implementing business standards across the Department.

We should be careful about derailing this governance structure.

It promises to overhaul and integrate DOD business activities ultimately saving billions of dollars. Changing this governance structure could prevent us from eliminating stovepiped systems or creating new stovepipe problems. For decades, the DOD and the congressional leaders have recognized the need for operational expertise and perspective in managing business systems. We should resist centralization of all business systems decisions and losing this

expertise and perspective.

In closing, I urge you and other congressional leaders to continue

to support the Department of Defense in its efforts to transform

DOD business management. Congress and the Department must

continue to be partners in this unprecedented undertaking. Our

business transformation progress is consistent with U.S. industry

standards and it is all the more remarkable that our accomplishments have occurred while we fight the global war on terror and

advance bold initiatives to transform America’s military capabilities.

This is a critical time for ensuring that DOD’s management of

the business systems becomes just as superlative as the military

forces they support. We in the Department of Defense appreciate

and continue to need the congressional support to achieve this vital

priority.

Thank you.

[The prepared statement of Mr. Lanzilotta follows:]

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Mr. PLATTS. Thank you, Mr. Lanzilotta. Thank you also for your

more than 3 years of service at the Department in the area of financial management. We wish you well in your new position. We

are sorry to be losing you from the Department but are grateful for

your past work and your presence here today in what we understand will be your last House hearing prior to your departure.

Mr. Kutz.

Mr. KUTZ. Thank you, Mr. Chairman.

Thank you for the opportunity to discuss financial management

at the Department of Defense. My testimony has two parts, first,

examples that demonstrate the need for reform and second, the

status of reform efforts and two suggestions for legislative action.

First, DOD’s financial management and related problems result

in significant waste and inefficiency. Just a few examples include:

over $115 million wasted on unused airline tickets; $8 million of

potentially fraudulent travel claims; at least $100 million lost annually because payments to DOD contractors with unpaid Federal

taxes are not levied; and $179 million spent on two failed financial

systems efforts.

These problems also impact DOD’s mission and have other consequences. Examples include: substantial problems accurately paying Army National Guard soldiers that distracted them from their

missions, imposed financial hardships on their families and has

had a negative impact on retention; the inability to recall 250,000

defective chemical and biological protective suits resulting in concerns that our forces in Iraq were issued these defective suits; and

improper issuance of defective chem bio suits to local law enforcement agencies with no warning that use could result in death or

serious injury. These and many other examples clearly demonstrate the need for reform.

My second point is that the lack of sustained leadership, inadequate accountability and cultural resistance to change continues

to impede DOD’s reform efforts. DOD’s stovepiped, duplicative

business systems continue to contribute to operational problems

and will cost taxpayers $19 billion in 2004. That is $52 million a

day.

Attempts to modernize DOD’s business systems routinely costs

more than planned, miss their schedules by years and deliver only

marginal improvements or are terminated with no benefits at all.

The two systems we evaluated as part of our report that is being

issued today are examples of systems that were not designed to

solve corporate problems. For example, although DOD testified to

the contrary before Chairman Shays, we found that DLA’s BSM

Project will not provide the total asset visibility needed for the

chemical and biological protective suits. As a result, if a batch of

the new JSLIST suits were found to be defective, BSM does not

provide the capabilities to recall defective suits.

DOD is continuing its effort to develop and implement a business

enterprise architecture to oversee and control its systems investments. We support DOD’s architecture efforts to date but progress

has been slow and control of ongoing investments has been ineffective.

Our testimony offers two suggestions for legislative consideration

that could help address DOD’s longstanding financial and business

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management problems. First, to ensure sustained, focused leadership in business transformation, we suggest the creation of a chief

management official. This position could be filled by a Presidential

appointment with Senate confirmation for a set term of 7 years

with the potential for reappointment. We envision this position

being filled by an individual with a proven background in the

transformation of large, complex organizations. We see this individual as an integrator across DOD’s business lines working full-time

on business transformation.

Second, we propose that the leaders of DOD’s functional areas,

known as domains, control business systems investment decisions

and funding rather than the services and the Defense agencies. We

believe that effective budgeting and control of the investment technology money by the domains is critical to their success.

Before closing, I too, Mr. Chairman, want to acknowledge Mr.

Lanzilotta for his years of dedicated public service at DOD and before that at the Senate Armed Services Committee. GAO has had

a very constructive relationship with Mr. Lanzilotta and we wish

him the best in his new position in the private sector.

In conclusion, DOD’s superior war fighting capabilities were

clearly demonstrated in Afghanistan and Iraq. However, that excellence is often achieved despite the enormous problems with DOD’s

business systems and processes. With the significant fiscal challenges facing our Nation, the potential for billions of dollars of savings through successful DOD transformation is increasingly important.

That concludes my statement. Mr. Rhodes, our Chief Technologist, will be happy to answer your questions.

[The prepared statement of Mr. Kutz follows:]

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Mr. PLATTS. Thank you, Mr. Kutz. We appreciate your written

and oral testimony as well. We will move right into questions with

the expectation that we will be joined by some other Members from

both sides. We will start with the 5-minute rule and see how that

goes.

I would like to start with the issue of the chief management official proposal. Mr. Lanzilotta, your predecessor, Mr. Zakheim,

talked about his support for that when he left the Department. In

your position now and given your 3 years at the Department as

well as your work on the Senate side, what do you think of the benefits of this type of position? Especially in view as we all acknowledge, and as you said in your opening statement, that this transformation is going to be years in the process, it is not going to happen quickly. Also, because of the length of time involved and there

likely being turnover of key personnel such as yourself. The proposal from GAO would perhaps bring greater stability and continuity to the focus and the prioritization of this transformation process. I would be interested in your opinion and any recommendations you have of how, if we were to look at this proposal in more

detail, we should go about that process?

Mr. LANZILOTTA. This proposal, like most of GAO’s proposal, I

agree in concept. I think mostly our differences have been on implementation. I think the fact that there is a Chief Operating Officer in the Department of Defense is a concept that has not only

been looked at by GAO but has been looked at by the Defense Business Board and they are looking at it for the Secretary as to how

that would be implemented. I think the problem is not in the concept but in the implementation of it. Knowing the Department’s

psyche, per se, that would be more difficult than just legislating it.

Mr. PLATTS. What do you think will be most difficult for the new

officer to actually get people to do as he instructs in the sense of

across the Department? Is it the service branches? Can you give

more specifics on what challenges in implementation you see?

Mr. LANZILOTTA. I think, first of all, we have to get a detailed

study of the statutory requirements of each position. Both the Chief

Financial Officer for the Department and the Acquisition Executive

are set in statute. The Operating Officer, if he was placed above

that, we would have to look to see how this interface would take

place or what laws would have to be changed. I don’t know the answer to that. I also don’t know if you maintained a Deputy Secretary and a Chief Operating Officer how that interface would take

place. I am not quite sure, even if I am smart enough to figure out

how that would take place.

I know that the Secretary has been made aware of this proposal.

I know he has the Defense Business Board, made up of business

leaders, looking at it as to whether he should develop this proposal

or how it would be developed, and I guess I would kind of wait to

see how these guys come out with it to see what their recommendation would be.

Mr. PLATTS. Is your concern what level of authority the new position would have, in other words, how these others would answer

to your work and partner with a new CMO?

Mr. LANZILOTTA. On both ends of it. I don’t know if I understand

the interface of how this position would work in relationship to the

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Deputy and the Secretary and how that interface works and I don’t

know how this person works in relationship with my successor as

the CFO. The CFO has certain Title 10 responsibilities that he is

held accountable for. Right now they are very specific as to what

those responsibilities are. I think we would have to go back and

look at Title 10 and see where these things interface to see what

changes we would want to make and then I don’t know—I guess

I am kind of rambling but you certainly don’t want to loosen the

accountability of certain things that the Under Secretary for Acquisition and Technology must do or the Under Secretary Comptroller

must do but the concept of a Chief Operating Officer is very attractive.

Mr. PLATTS. Mr. Kutz, what do you envision at GAO to address

those relationships with the CFO, with the Acquisition Officer for

example, what level of authority this new position would have relative to existing positions and basically what leverage the new person would have is going to be key?

Mr. KUTZ. I think this position attacks some of the causes better

than probably the current situation where again I think if you look

at the in-box, Mr. Lanzilotta went over to the Department with the

idea that he would be spending full time on transformation. The reality of the situation is that is not going to happen. So from the

standpoint of getting someone there to attack the causes of having

someone full-time championing this, I think this is something that

has some merit to it.

I think there are issues with respect to legislation, how you

would write it, how the interactions would take place but certainly

it would be a position at a higher level than the current Comptroller position which is kind of the champion of this right now and

might have better leverage over the services because that is one of

the real situations, you do have cultural issues with the different

services and you have issues with the business systems and other

things, just getting everybody to play in an integrated manner.

That goes over to the weapons side too but on the business side,

that is true.

We would see this as similar to having a Deputy for Policy and

Mission-related Activities and this would be the Deputy for Mission

Support Activities. You would have to somehow draw the line as

to where those two crossed over. You would have dual reporting of

the Under Secretary AT&L to both of those Deputies probably so

there would be certain issues with that.

If there was a silver bullet or an easy way for this to happen,

it would have already happened, so I think we do need to think

about some out of the box kind of thinking to try to solve this very

difficult problem.

Mr. PLATTS. But however you align the authority, you see the

benefit of a fixed term position to have that continuity of focus will

enhance the likelihood of success?

Mr. KUTZ. Two things, continuity of focus across administrations

and someone who works on this full-time. This is their responsibility regardless of what else is happening in the world, because there

is always going to be various conflicts that become emergencies in

the Department of Defense. It would be someone that this is what

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they do period and this is their responsibility and it gives someone

for Congress to hold accountable.

Mr. PLATTS. I think I am going to come back to that but I want

to yield to the ranking member. Before I do, we have been joined

by the gentlelady from California, Ms. Watson, and our Vice Chair,

the gentlelady from Tennessee, Mrs. Blackburn. I appreciate both

of you being with us.

Mr. Towns.

Mr. TOWNS. Thank you very much.

Why 7 years, Mr. Kutz? Why would you appoint him for 7 years?

Mr. KUTZ. We said 5 to 7 years, something that would cross administrations. Right now, the current political appointee turnover

is every 2 or 3 years. The Comptroller position has routinely turned

over ever 2 to 3 years. It is very difficult to sustain efforts over 2

to 3 years that are going to take possibly a decade or more. That

would be why.

Mr. TOWNS. Mr. Lanzilotta, first of all, let me join my colleagues

in wishing you well. I understand why you are testifying with a

smile on your face. [Laughter.]

Some have said the Pentagon’s books are in such utter disarray

that no one knows what America’s military actually owns or

spends. What changes have you made that will enable the Department to effectively carry out its stewardship and responsibilities

over the funding, equipment and other assets it receives from

America’s taxpayers? They are saying that nobody knows where

the equipment is and how much we are spending, it is in total disarray. Would you respond to that?

Mr. LANZILOTTA. Prior to 1990 and the Chief Financial Offices

Act and several other acts, the Department’s financial systems

were geared toward what we called appropriation accounting. Basically, when the Congress gave the Department a certain amount of

money, it was kind of like checkbook accounting. It isn’t that we

don’t know how much money we are spending or where it is, but

standards after 1990 changed to an auditable financial statement

which is a different standard.

The problem we had in the past and what we are trying to correct now, which goes to the basis of your question, I think, is our

supply people developed supply systems and they developed systems that met their needs to track certain items the way they

thought they should be tracked. There was no integration with the

financial systems to ensure that we had an end to end process from

buying something to inventory back to actually paying the vendor

and tracking it through its life.

What we are trying to do now and why it is so complicated is

we are trying to build an architecture that maps out the business

processes of the Department. When we look at the finance and accounting domain, which is all the finance and accounting systems,

we went to look to see how many business rules, processes and regulations we had to build into the review in these processes. It was

like 180,000 of them. Those have to be reviewed to make sure they

are valid and that our systems incorporate those because as we get

to stovepipe systems what is wrong is they don’t incorporate all

those standard business rules and don’t incorporate cross integration between logistics or maintenance or whatever the system is

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with the financial system. I am corrected, there are 5,000 for the

accounting and finance domain and 180,000 departmentwide.

That is what was wrong and that is what has to be done and

that is what has taken so much time. For us to get this right, we

need to make sure we understand the interface of all our systems,

we know what touches what and what happens if we change something. If we don’t, we will learn the same lesson private industry

has learned over and over which is the main reason why ERPs fail

in private industry. It is the lack of planning prior to implementation that causes most of these systems to fail. With the Department, it is complicated.

Mr. TOWNS. Mr. Kutz, would one chief management person be

able to do this? This is colossal. Could we look at maybe how it

could be divided because when you look at the fact the Department

has made its goal of getting a clean opinion on its financial statements a top priority, their efforts seem to be futile under the current circumstances. Looking at the fact we wasted so much money

with systems, we go so far with them and then stop and then go

in a different direction. Do you think one Chief Operating Officer

could do this or should we find a way to divide this and have two?

I am asking you because you have spent a lot of time on this and

I really want to get your thinking.

Mr. KUTZ. I agree with you, I don’t think one person can do this

but one person needs to lead this and needs to be accountable within the Department and to the Congress for this. We believe that

would be the kind of person you would want, someone with a proven track record in business transformation. All transformations

have a leader, a point person, someone you can go out and touch

and say you are responsible and you are accountable, but you are

right, they can’t do it alone. They are going to need all of the functional areas to work together with them to develop integrated solutions to the various problems the Department has.

I agree and say they do need a chief management official or

something like that but they also need a lot of people to pull together to solve this very complex and significant challenge.

Mr. TOWNS. We will get another round, right?

Mr. PLATTS. Yes, we will come around again. Thank you, Mr.

Towns.

Before I go to our Vice Chair, we have been joined by Mr. Kanjorski from Pennsylvania. Thanks for being with us, Paul.

Mrs. Blackburn.

Mrs. BLACKBURN. Thank you, Mr. Chairman, and thanks to all

of you for being here.

We had a hearing last year pertaining to some of these issues

and I think it is disappointing to see there is not a lot of progress

or energy that has gone forward in correcting some of this. Let us

continue to talk for just a moment about this leadership structure

and the type of leadership structure that would be necessary to implement in order to go through the business process modernization

because I think that is really important and the accountability, Mr.

Kutz, as you just said, somebody has to be the one who is responsible and held responsible and accountable not only to us but to the

American people and the taxpayers for actually putting something

in place. Let us talk about that for a moment.

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Mr. Kutz, I would like to hear from you and Mr. Lanzilotta from

you also as to what you see the leadership structure looking like

to carry this forward. You are talking about a decade or 7 years

preferably. How would that go through an evolution?

Mr. KUTZ. With respect to the structure, again I think this would

be the point person. They would report directly or be part of the

box that says Secretary of Defense. They would have responsibility

over the business side versus the mission and the weapons side of

the Department of Defense. Again, as Mr. Lanzilotta said, it would

require certain legislative drafting and organizational responsibilities be clarified but they would be someone who would have a set

term for sustained leadership purposes and would be brought in

with a certain type of background. You are looking for someone

that Secretary Rumsfeld himself or whoever is the Secretary is

going to have to make a call and get someone with special qualifications who is going to want to come to the Government and

money is not going to be the issue for them, they are going to want

to make an impact on the Government. This is certainly one of the

biggest challenges you could possibly envision for someone from the

private sector to come in and actually try to do.

Mrs. BLACKBURN. So you envision it being a team that is brought

in from the outside and not utilizing talent that exists within?

Mr. KUTZ. I think the leader would be someone brought from the

outside but I think they may bring some of their own people in to

serve certain functions because there are a lot of talented people

within the Department of Defense. I have looked across the Government and they have some of the very best people in the Federal

Government and in the private sector I have dealt with. There are

a lot of good people in the Department of Defense. There aren’t a

lot of people that have had experience in the transformation at the

Department of Defense. There are probably better people outside

that have experience leading these kinds of transformational efforts.

Mr. LANZILOTTA. Actually, Mr. Towns brought up some of the

concerns or issues that I think need to be wrestled with. It is a colossal effort and it may be too big for one guy. I am just going to

give you observations from working on this for the last 3-plus

years.

I have found that the CIO has to be a strong player in this effort.

If you don’t have a strong CIO with a marriage with the Comptroller because that allowed us to get the technical expertise from

somebody who was familiar with the IT business, familiar with

fielding IT systems and brought that in that expertise along with,

I don’t want to say the threat of money but the ability of somebody

to sit down and say, sometimes you just have to be unreasonable

with people to get a point across, to make a go. This is what we

are going to do and if you don’t do this, we are going to take your

money. You don’t find that. What I have a hard time with, you

don’t find that one individual that brings the total package together. It has to be a marriage of certain skills.

When I was looking for a program manager to head this program, I advertised for 2 years to try to find a guy that brought the

skills necessary that I thought were needed to manage a program

like this. I finally had to settle on somebody—not settle—let me

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edit the record and get it straight. I found a very good individual

but I set my goals too high because there wasn’t anybody in private

industry that had the type of experience to deal with something of

this magnitude. I talked to CIOs of private enterprise, I don’t want

to mention names but some of the largest corporations. I went to

the largest conglomerates looking for help because I figured a large

conglomerate was most similar to the Department where they were

trying to manage all the information systems from all the various

sectors that this conglomerate had. I think there were 200 different

sectors this conglomerate had, to try to get some ideas of what the

qualities were of the person.

This individual we are trying to get, the Government does have

good people. The Government has some of the very finest people

but this particular individual has to have a certain set of skills that

are very difficult to find. That is one of the concerns about trying

to get one of these guys. It is colossal.

The only way I think you can attack this is to break it up in

pieces. I think it is a marriage, a conglomeration of people that

have to come together to make this work. I don’t think if you create

another layer of bureaucracy in the Pentagon for operating versus

operational versus the other staff, you are going to make any

progress because the staffs will just fight each other all the time.

We just won’t go anywhere.

I agree in concept. I just have questions or concerns on how it

is implemented because after 3 years in the Pentagon I became a

little jaded with how things work.

Mrs. BLACKBURN. Thank you, sir.

Mr. PLATTS. We will come around again for more questions.

Ms. Watson.

Ms. WATSON. Thank you, Mr. Chairman.

Looking at the title of the subcommittee hearing, the Subcommittee on Government Efficiency, so I read through the preparation

that my staff had given me last night and one of the things I

picked up on is the communication and across lines, I guess across

units, understanding what the general principles are in terms of financial management. Would you address that after my second

question?

You had said previously that DOD and GAO agreed on strategy

but that you need to do more studying before you can proceed with

this implementation. Have you begun such a study and if not, what

are the obstacles that are in the way of the study and what can

we do to help expedite this? I feel there still doesn’t seem to be the

kind of communication and general procedures that are understood

across lines.

Mr. LANZILOTTA. The Defense Business Board, a group of men

the Secretary has put together to advise him on business processes,

has brought this concept to the Secretary and the Deputy for study.

I do not know what the outcome of that is. The concerns I had expressed not in concept but some of the things I spoke about previously, the things that need to be thought through and which I

haven’t done on how to make this work.

I think the devil is in the detail. I think it is going to take somebody to go through Title X and all the statutory requirements and

clearly define the scope of what everyone is going to do. I still have

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the concern Mr. Kutz expressed that this is a huge effort. My personal belief is that it may be better implemented with a marriage

of people, each bringing a different expertise to the playing field

than just one individual. I guess if you could find the right guy

with all this, you would be set to go. I just think he is exceptionally

hard to find.

Ms. WATSON. I think you have to recommend that. You need to

have several people. I don’t think you will ever find that person

with expertise across the board. That ought to be your major recommendation.

Mr. LANZILOTTA. I agree.

Ms. WATSON. The other thing, in reading through materials, it

seems as if there is a bit dragging of the feet because there is fear

that some of the dysfunctioning of this process might be revealing

some things that have to do with the way Defense operates and the

war we are fighting, etc. What do you find? That is on the political

side.

Mr. LANZILOTTA. I guess it really depends on where you sit. I

know GAO has made comments that our progress hasn’t been as

fast as it should be and I am thinking I am moving at lightening

speed and probably the truth is somewhere in the middle. We addressed this communication issue and the communication issue became very vital for two reasons. First of all when we divided all

the business systems into business lines and the six business lines

we divided them into, we had to deal with something we have

never dealt with in the Department before, the cross domain issues

where one issue crosses a number of lines or number of responsibilities. Most of the problems—I shouldn’t say most. Lanzilotta believes a lot of our problems evolve when an issue goes across responsibilities. If it is strictly in my area, then I focus on it and take

care of it, but when you talk about some of the issues that Mr.

Kutz talked about before like unused airline tickets, tax and everything and travel, that actually crossed five staff areas of responsibility. It is those cross domain issues that we are struggling with

and where the communication has become very important.

How did we do this? Lanzilotta believes and this is Lanzilotta believing, I have my six domains and I put them in a room and that

is all they do, talk about these issues. We call it a Do It Committee. There are representatives from each of these business lines

and as we bring up these issues, these people are responsible for

figuring out how to make this work. They now then come to a

steering group if they can’t get resolution within a couple of days.

If they can’t come to an agreement, it is immediately elevated to

the Executive Steering Group for decision.

I feel it is two things. First of all, communications, you have to

bring everybody involved into the same room, give them a lot of

coffee and not let them leave and if they can’t resolve the issue,

you can’t let them work on it for weeks. It has to be one of these

things where after a certain time limit, it has to be elevated for decision. We have found we have had remarkable success in that

area. The communications you brought up as the second part of

your question is key on making these changes and also on change

management. Everybody has to know what everybody is doing,

65

there has to be complete transparency, everybody has to agree to

what the facts are.

We might disagree like GAO and Mr. Kutz and I do on the implementation of some of this stuff but I don’t think there is disagreement on the facts. I don’t think there is disagreement on the

findings. We just disagree sometimes on the best way to implement

it or make change but the communications is key. That is maybe

two observations I painfully had to work through, how to get this

done and we call it a little group, let’s do it and that is all they

do.

Ms. WATSON. That do it concept ought to go across all domains.

Mr. LANZILOTTA. It takes in all domains.

Ms. WATSON. And we shouldn’t have barrier walls. I think

throughout the system, when we want to get rid of something that

is a little natty problem, we go to study. We are beyond that. Let’s

just do it. I would suggest that your policy of do it be something

across, as you say, all domains, just do it, let’s get it done because

I think your job is essential since we are in a time of war and this

is defense budgeting that we do and we don’t have the information

and so on. You certainly need it and need to know how the dollars

are working and so on. We have to have a do it approach across

all domains, communication and transparency now.

Mr. LANZILOTTA. I agree. I hope I didn’t mislead you because it

is something we are trying to do.

Ms. WATSON. No, you didn’t. I am just supporting what you say

you are doing.

Mr. LANZILOTTA. I am out of time but I would like to give you

some examples later on of things we have done.

Ms. WATSON. Thank you.

Mr. PLATTS. Thank you.

Mr. Kanjorski.

Mr. KANJORSKI. Do you think we ought to just privatize the Defense Department?

Mr. LANZILOTTA. Sometimes with 180,000 business rules.

Mr. KANJORSKI. Back in May 1998, the Defense Travel System Program Management Office awarded a $263 million contact to

Northrop Grumman to develop and implement an automated electronic travel management system for all DOD components worldwide, probably a good idea. Is Northrop Grumman the major software manufacturer in this country. I thought they were a munitions factory?

Mr. LANZILOTTA. Because of my personal considerations on this,

I am going to have to recuse myself from talking specifically about

Northrop Grumman. I would be glad to talk to you about the process.

Mr. KANJORSKI. Are you associated with them?

Mr. LANZILOTTA. On the 17th.

Mr. PLATTS. He is leaving his current position to go to Northrop

in a few weeks.

Mr. LANZILOTTA. I can talk to you about the process and I can

talk to you about Defense’s travel system. I can’t answer any questions on Northrop Grumman.

Mr. KANJORSKI. I am not particularly addressing Northrop

Grumman other than they are the contract holder.

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Three years later, the system was deployed in August 2001 and

it was determined it didn’t work. Under that original contract, all

the development costs were to be borne by the company but under

the new administration, a new contract was entered and they restructured that contract and the U.S. Government picked up all the

development costs to improve that program.

There is a highly critical Inspector General’s report of the contract award and here we are in 2004 and the system still doesn’t

work. It cost twice its original cost, so more than the original contract costs were borne by the taxpayers and it still purchases tickets sometimes $1,200 more than the lowest available fee.

I am wondering assuming half a billion dollars has been expended, how long can the Department of Defense go on putting

Band-aids on all of its contracts or systems that don’t work?

Mr. LANZILOTTA. I can talk about the process. First of all, the

system was originally designed by a company known as TRW and

TRW was later merged into Northrop Grumman and that is how

they became involved. The Department currently has 42 or 43 different travel systems. When GAO did some work on unused airline

tickets, premium travel and some other areas, they found they

were deficient. The problem was we had no way to look at an integrated system for Defense travel. Defense travel did start out as

a seriously flawed program but the requirement for a Defense travel system never disappeared.

The Department needed an end to end system that allowed it to

go all the way through the process from the time a traveler made

a reservation to the time he got paid to keep it in the financial

statements. That way we would have tracked what people were

doing. That requirement remained.

The Department had a troubled program, and I am not disputing

the fact that Defense travel initially started out as a wrong contract vehicle, maybe a strange concept and later evolved into what

I think is a very successful system. We are in the process of fully

deploying Defense travel systems throughout the Department. The

Defense travel system has competed on the Government’s e-travel

and has been picked up as one of the vendors for e-travel governmentwide.

Mr. KANJORSKI. That is another question I have. First of all, do

you have any idea what was spent on this system?

Mr. LANZILOTTA. I can get you that for the record. I don’t have

that with me.

Mr. KANJORSKI. Would it be reasonable to say in excess of half

a billion dollars?

Mr. LANZILOTTA. Over the last 10 years?

Mr. KANJORSKI. Over the last 5 years?

Mr. LANZILOTTA. I don’t know if it is that much. Before I hazard

a guess, I would like to get the information.

Mr. KANJORSKI. I would like to know why it ended up in the

ownership of the company that had the contract to develop it when

the United States paid for the development costs? You brought up

the point you are now competing with other Government agencies

with a process that has been developed by the taxpayers’ money for

the Department of Defense.

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Mr. LANZILOTTA. The Government bought the license and bought

the program.

Mr. KANJORSKI. Then why is the company bidding with other

Government agencies using that process?

Mr. LANZILOTTA. There are two ways to pay for it. We bought the

developmental costs up front, that way we would own the software,

we would own the system and wouldn’t have to pay the developmental costs over the transactional fee. Government on e-travel is

paying for the developmental costs by each transaction as people

use it. There will be a huge savings when we get one integrated

system in two ways. First of all, we won’t have to spend so much

money processing claims on paper for travel.

Mr. KANJORSKI. That is for the Defense Department.

Mr. LANZILOTTA. I can only speak to the Defense Department.

Mr. KANJORSKI. I understand but Northrop Grumman is now

selling this to 13 other Government agencies using the development money the U.S. taxpayer forwarded to develop your system.

I don’t think that is smart. The Defense Department should have

formed a corporation, developed its own system and then contracted with other Government agencies to handle their system. If

there is going to be a profit made in the development of the system,

it seems to me it should inure to the benefit of the American taxpayers, not to Northrop Grumman.

Mr. LANZILOTTA. I can’t speak to that.

Mr. KANJORSKI. There are some travel agencies in this country

that function pretty well. Have you looked into just contracting

that out? You fellows are always talking about privatizing. Why

didn’t you go to Travelocity or someone else and say give us a system that works, here is what we want to pay. We want the lowest

fare and contract it out?

Mr. LANZILOTTA. Truth of matter, our services are contracted out

to Carlson, Sado, I forget how many different companies we have

different contracts with. We were looking for an integrated system

that would go into our pay systems and allow the traveler to go all

the way from his travel, go through our finance and accounting systems and then come back and disburse the money to him. The only

way we are ever going to get a clean opinion is if it wasn’t a matter

of just going to Travelocity or one of those other systems because

we have systems now that will make a reservation, 43 of them. We

were looking for a total end to end system that would allow us to

automate the entire process because the savings we would get from

this is manpower, paper reduction and then the most efficient use.

I can’t get to a clean financial statement, the Department can’t

get to a clean financial statement if we go to Travelocity, get a certain rate and it has to manually be put into a finance system, then

manually put in somewhere else because each one of the manual

inputs my friend Mr. Kutz is going to come by and slap. I need the

total integrated system if I am ever going to get to a clean financial

statement and I am also able to with one data base to look to see

if there are any abuses for premium travel, unused ticket.

Mr. PLATTS. If we could maybe come back, I am trying to get to

everyone. My understanding is we have votes in the next 10 or 15

minutes. I will come back to you for another round after all Members have had one round.

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We have been joined by Mr. Tierney from Massachusetts. Thanks

for being with us as well. The esteemed chairman of the National

Security, Emerging Threats and International Relations Subcommittee, Mr. Shays from Connecticut. Mr. Shays, you are recognized.

Mr. SHAYS. Thank you.

I think this is an important hearing and I apologize for not being

here. This week is even worse than most of my Wednesdays. I will

be leaving for a Budget Committee meeting but I want to put my

statement in the record.

Mr. PLATTS. Without objection.

[The prepared statement of Hon. Christopher Shays follows:]

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Mr. SHAYS. Also I want to compliment the staff on their good

briefing paper about DOD.

I know that all three of you want this system to be dealt with,

but it is amazing to most of us that no one seems to crack it, no

one seems to break through and get a system that works better.

I am curious as this relates to hearings on the chem-bio suits, we

were basically dealing with control and accountability. We were basically in need of making sure we had the best protective gear. We

had too many of the brand new suits and some of them were being

sold for a fraction of the cost, and we were increasing production

so that we could get more suits. I want to get your view.

In your view, what are the two or three most important steps

DOD needs to take in order to prevent the asset visibility and accounting problems illustrated by the chem-bio suits from continuing in the future, buying when we are actually selling some because we have excess in some places?

Mr. KUTZ. With respect to the problems with the BDO suits

which were the prior suits, you had the hearings on the defective

suits that they were unable to recall, we had an issue with total

asset visibility. When the suits were shipped from the Defense Logistics Agency to the Army, for example, accountability was lost

and the Army did not have systems to account for that inventory.

If you wanted to know where the suits were once they left the Defense Logistics Agency, you had to do a data call.

One of the systems we looked at is part of today’s hearing and

that we issued a report on goes back to a hearing you had where

DOD represented to you that BSM, a current system effort at DLA,

was going to solve that asset visibility problem. I testified earlier

to the subcommittee here that the system as implemented right

now will not fix that problem.

If we had another situation where you had the defective suits out

there or another need to recall them for some other emergency that

might arise that required suits to be moved from one part of the

country to the other, you would need to still do a data call today

and for the foreseeable future because the systems development effort did not involve the integration of the Defense Logistics Agency

systems with the Army, for example. That problem has not been

fixed as a result. So you still have that risk and the other risk that

you mentioned of selling suits at the same time that we need to

be buying them.

Mr. SHAYS. So we will just continue right now?

Mr. KUTZ. Right now I don’t see a solution necessarily for this.

The BSM system is relied upon all these other things happening

which may never happen to provide that asset visibility. For the JS

list, the current suits, it is too late, those suits are already out

there and you don’t have your accountability for those.

Mr. SHAYS. Does DOD agree with that?

Mr. LANZILOTTA. I think Mr. Kutz has stated the facts accurately. There is no short term solution to this problem because it

doesn’t go just to the suits, this problem goes to asset visibility.

The suits are just systematic. It also goes to the gentleman’s question about travel. We need integrated systems so we can track

whether it is a travel voucher or a reservation or a suit or a widget,

no matter what it is we need to be able to track it as it goes

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through the process. Now we have numerous systems that do the

same thing and we lose where it is in the system because we don’t

have the middle system.

Mr. SHAYS. The implications of all this is mind boggling because

we are talking incredible amounts of assets and inventory. I was

thinking about this after reading the briefing paper because after

17 years I hear the same story, not all 17, but a good chunk of it

that I have been in Congress. I am almost struck by the fact that

the President and Congress have to agree and get someone with a

term of office of 10 years like General Accounting Comptroller and

basically assign this task and integrate the 2,300 systems we have.

I would love some long term solution because I don’t think there

is a short term. I don’t think we have it yet. I don’t think we have

the continuity yet to guarantee that it will be carried over from one

administration to another.

Mr. KUTZ. We agree with you and we talked about it in some of

your subcommittee hearings, the need for a chief management official and someone to be responsible for business transformation, integration of systems, improving human capital and processes

across all business lines. We agree. This person would need to have

a term of 5 to 7 years with potential for reappointment so they

could be there long enough to sustain change.

One of the nice things about working at the GAO is we know

David Walker is going to be the Comptroller General for 15 years.

If he was a bad Comptroller General, that would be one thing but

I believe he is a good one. We have plans and processes in place

and he has sustained transformation of our organization and we

know it is there to stay. It is not going to change, so that is a positive and one of the reasons I am at GAO and I plan to stay because

of sustained quality of leadership of my organization.

Mr. SHAYS. Thank you.

Mr. PLATTS. Thank you. We appreciate your being here on I

know a hectic day for you as well.

Mr. Shays touched on why we can’t get this done. One example

was on the number of systems. Last year at our hearing we were

in the 2,400 systems range and now we are at 4,000 and still

counting. We are having difficulty even getting our arms around

what is out there.

One issue deals with CMO as an accountable individual or who

is going to be responsible for what is happening or not happening

and the cultural resistance at the Department to change and having more accountability. I wanted to specifically focus on the 2003

Defense authorization bill where we put the requirement that the

Comptroller had to approve any expenditures over $1 million on

systems to try to have everything be part of that business enterprise architecture and the fact GAO’s numbers on a limited basis

identified at least $863 million of obligations that were not appropriately reviewed as the statute required, as well as an effort to

have lots of contracts that would be just under the $1 million

threshold to avoid having to go through the approval process.

Mr. Lanzilotta, if you could address your assessment of that $863

million of expenditures that were not properly approved and specifically what, if any, consequences occurred within the Department

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once those inappropriate transactions occurred? Who, if anyone,

was held accountable for not following the statute?

Mr. LANZILOTTA. I will say Mr. Kutz was kind, there is probably

much more out there than identified in the report. As you mentioned, there were 4,000 systems and we are also trying to capture

the maintenance contracts. We found you can call something a

maintenance contract and it also is really a systems development

contract because the guys sit there with no maintenance to be

done, so they work on upgrades to the system. We are trying to

capture all that.

We always had a procedure to do that. We didn’t have the ability

to do it which is a difference. We have now gone through a lengthy

process to bring in something we call portfolio management. I can’t

explain away the sins of the past. I can talk to you about what we

will do in the future to correct. We have portfolio management, a

leading business industry practice we brought to the domains and

our IT investment. I think we are effective and it is now being exported to the war fighting systems as well as a way of managing

the war fighting portfolios.

In these six domains, they will come through under portfolio

management and in the palm I imagine the program objective

memorandum, the future year plan, 2006–2011, each of these services are responsible for reviewing the IT systems in their domain.

We are taking responsibility for the systems over $1 million and

have told the domains they have the flexibility to review the systems under $1 million to get to 100 percent.

The problem is one of workload. I know my successor won’t be

able to come to this committee and guarantee that we looked at

4,000 systems. The finance and accounting domain is one of the domains personally under the Comptroller. I can look at I believe 20

systems and 80 percent of the dollars, so I believe we can get the

majority of the dollars and look at those systems. It is like the vendor pay and the tax issue which we haven’t gotten to. I have 20

vendor pay systems, 8 represent 85 percent of the dollars disbursed, 12 represent 15 percent of the dollars disbursed. My priority is to look at those eight systems that represent 85 percent of

the dollars disbursed and go after them. I will pick up or the Department will pick up in the future those other 12 systems that

represent 15.

Mr. KUTZ. Can I quickly address that?

Mr. PLATTS. Yes.

Mr. KUTZ. I think you hit on a very important point, that there

are no consequences. In fact the consequence might be that they

are going to get more money next year and that sets up the incentive systems in place. When I mentioned it in my opening statement, that is what I meant. We see it not just in areas of compliance with the law, but for misuse of Government funds. When people are found to misuse Government funds at DOD, we found there

are no consequences, nothing happens to them. I think that gets

back to the culture and some of the reasons why you don’t see

change.

Mr. PLATTS. If your examples with the $863 million of expenditures not found in the approval process as set in the statute, was

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the Inspector General involved in looking into any of those from

what you found?

Mr. KUTZ. Not that I am aware of, no, and I again, I don’t know

for sure there were no consequences but if history is accurate,

there were no consequences.

Mr. PLATTS. You said you can’t undo the wrongs of the past but

try and go forward. As part of going forward, is there being laid

out within the senior leadership of the Department the message,

whether a civilian department employee or a uniformed officer who

makes these transactions, engages in them inappropriately, there

will be consequences, you will not be promoted, you will be demoted, you will be held accountable in some way?

Mr. LANZILOTTA. I want to clear up one issue. If we are talking

about fraudulent transactions, the Secretary has made it very clear

there should be consequences and disciplinary actions taken.

Mr. PLATTS. What about where it is not fraudulent, but they said

I am not going to get approval. I need this, I am going to do it and

I am not going to the Comptroller to get approval to do this?

Mr. LANZILOTTA. I would like to tell you that won’t happen but

it probably will.

Mr. PLATTS. If it does happen what would be the recommendation for action in response to it happening inappropriately?

Mr. LANZILOTTA. There is only one action and everyone knows

what that action is. It is like HOV violators on the HOV. You can

try to get through there and maybe on a certain day you will but

if I catch you, everybody knows the consequence is you lose your

money. We set up a portfolio management system, each of the domains came in and briefed their concept to the services on how it

was going to work for the future year’s defense plan and for the

budget and they are getting ready to go through another round of

briefings on how they are going to implement that information in

August. The word has gone out if we find you we are going to take

the money. We don’t normally find systems like this where you can

find the one guy who actually did it because the system might be

at Fort Polk, LA and maybe that guy didn’t get the word properly

and he put in a budget request for something that wasn’t reviewed.

If we find it, we will take it. He might not have known that he was

violating departmental guidance but the guidance is out there.

Mr. PLATTS. We are also talking about violating statute too. If it

is in the Defense authorization, it is law. It is saying you won’t do

this, so it is not just guidance, it is saying we are going to follow

the law. The Department has a responsibility to make sure your

acquisition officials know what the law is. Send out the word, if

you are looking at a system over $1 million, you may not procure

it without approval from the Comptroller. There is a duty of the

senior leadership to make sure they do know what the law is.

Mr. LANZILOTTA. I agree. Also we are looking at it as a potential

ADA violation, along with the investigative things that go with

that.

Mr. PLATTS. I think that there has to be consequences whether

monetary funding for a program or personnel consequences for

those not complying with the law as Congress has said it will be.

I want to get to Mr. Towns.

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Mr. TOWNS. Quickly, at this moment in time, what mechanism

does DOD have in place to say no to proposed system investments

across the Department and to pull the plug on ongoing systems

that are not cost effective and in accord with the Department’s

overall future of its business support operations? Have there been

any instances in which DOD has said no or pulled the plug on such

systems? If so, could you give me an example?

Mr. LANZILOTTA. We have two ways of pulling the plug. We have

asked the domains to look at the service and Defense agency budget submissions and certify these systems ought to go forward. We

also have another way that in the acquisition process when the

large systems go through for their milestone decisions, part of the

requirement is they have to say I am going to put the system on

and these following systems get canceled or turned off and this is

when the systems get turned off. This is implemented in something

we call the budget review process and we will issue a program

budget decision with the results of these reviews as to how they

occur. That is how we plan to handle that.

The second question goes to when we turn off systems that waste

dollars. The truth is in the Comptroller shop we have turned off

systems because we didn’t think they were going to be effective. We

find ourselves in a situation right now that some of these systems

were developed prior to our being able to develop architecture and

being able to develop the guidance as to what these systems would

do. We have found some systems in the course of development we

didn’t think they were going to do what we wanted them to do.

Rather than take on the full life cycle cost of these systems and put

them out there because we know once we deploy a system, it is out

there for a good long time before we find the money to replace it,

we terminated those systems we didn’t feel were going to happen.

We also have cases where we modified systems to make these old

systems be somewhat compliant. The entire transformation of the

Department’s systems isn’t going to be something that happens in

2007. That is when we are shooting for a clean statement but the

automation and replacement of the investment in our automation

systems is going to be an ongoing effort. This transformation effort

will never stop because technology changes every 18 months. We

are using things now in our new systems that weren’t even available to us when we started the program. I always try to get the

people in the Defense Department to understand this transformation will never stop and we are setting up a permanent structure to handle our business lines that will continually reevaluate

how this works.

Mr. TOWNS. Thank you.

Mr. PLATTS. Mrs. Blackburn went to vote and will come back so

I can vote.I can try to get through more questions.

I would like to address a question or two to Mr. Rhodes on the

technology side. A lot of what we are talking about is using technology to compile useful information, information that is timely

and relied on and acted upon. From a personnel standpoint, what

do you see as the challenges for the Department? We talked about

a Chief Management Official or other realignments and recommendations from GAO about domain focus across all service

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branches. From a personnel standpoint, what do you see DOD’s

challenge is regarding personnel on the technology side?

Mr. RHODES. DOD has some of the most talented technology people in the world. The struggle for DOD is that I and other engineers can build anything you tell us to build. Prior to coming to

Government, I designed airplanes that disappeared, I designed

large scale systems but they were designed to meet a set of requirements. When Mr. Lanzilotta answered Mr. Kanjorski, he used the

term end to end. If you leave it to me as the chief engineer to define end to end, I promise you I will be wrong, I will be completely

right from my perspective, I will not solve your problem, I will

solve what I think is interesting. I cannot fix your problem in a

vacuum. If the Chief Management Officer or whoever this person

is going to be who is in charge of all this is going to have to be

able to say end to end means x.

Mr. PLATTS. Spell out what it is.

Mr. RHODES. Spell out what end to end is. The reason the Department of Defense, talking about the Marine Corps, the Navy

and the relationship between the Navy and the Marine Corps,

there are so many systems out there and now I have to define end

to end. First of all, end to end is not technology, it is a human function. You have to explain it to me from a business perspective,

what are we going to do. Why do we lose chem bio suits? Because

nobody knows where they went because I am in my area. Where

did it go when you were done with it? I don’t know, that is not my

responsibility, I don’t care about that.

Everybody has to understand that it is not just code, it is process. Process is a bad word for a lot of engineers because we look

at it and say it is meaningless. It is meaningless because we never

had it explained to us necessarily as succinctly and clearly as I

need to go from A to B to C to D; what are the relationships between these entities so I can know what systems I can turn off.

Mr. PLATTS. So we need to emphasize or strengthen the relationship, the communication between our technology people and the

management officials?

Mr. RHODES. Absolutely. Technologists are just as guilty of being

arrogant and domain specific and looking at others as being lower

life forms and being all that because we are the engineers and

what not, but there has to be a translation that takes place between this is a human process to the bits and bytes that have to

move on this cable from point A to point B and what those human

interfaces are between the systems based on process so you can engineer the system interfaces so the messages can pass.

Mr. PLATTS. When we go forward with the systems and there are

lots of investments being made, what do you think we could do better or DOD could do better to avoid this $863 million of expenditures on systems that weren’t checked to make sure they would jive

with the architecture we put in place? what do we need to do better

to ensure they all are going to work hand in hand?

Mr. RHODES. One thing I would want to see coming from whoever this person is or whatever this entity is that is going to be the

chief management function is instilling of discipline and requirements development process. The requirement has to be clear, concise, unambiguous, testable. We didn’t look at all the requirements

77

associated with the systems involved. We looked at a small subset.

Every one of them had a problem, so if I only look at 10 percent

of them, I understand I don’t have a statistically valid sample. If

100 percent of the 10 percent I looked at had a problem, then I

know I have a serious flaw in the development, requirements analysis and requirements management process. That would be what I

would want. This is the technology perspective, the technology personnel view of the development cycle. I would want that individual

through carrot, stick, money, punishment, whatever to be able to

instill in everyone across the services, across the domains, across

the Department of Defense, that we are going to get one set of requirements, one definition of financial management and no, Service

X, you are not going to get a waiver for weighted valuing of that

asset.

Mr. PLATTS. Uniformity.

Mr. RHODES. Absolutely, consistency, uniformity, translated so

that I can actually build a system because I don’t know any contractor, having been one, that gets up every morning and says how

can I screw up the system. It is how can I build the system to meet

the vague requirements I have in a changing environment.

Mr. PLATTS. I am going to have to run and vote and the Vice

Chair should be here shortly. I am going to recess briefly and pick

up where we left off.

[Recess.]

Mrs. BLACKBURN [assuming Chair]. We will call the committee to

order.

I will begin with my question and when the chairman returns,

he will retake the Chair. Thank you for being patient and waiting.

Mr. Kutz, the 94 percent of mobilized Army National Guard soldiers from the six units we reviewed had pay problems. That is on

page 2 of your summary. This is something that is important to figure out if we are addressing those pay problems with the National

Guard, the per diem, etc. and the other part, the Defense travel

system we talk so much about. Is that equipped to cover or not

cover the National Guard soldiers being mobilized?

Mr. KUTZ. We were just speaking of that as you were out. Our

understanding is the Defense travel system will not deal with contingency travel for mobilized Army National Guard or Reserve soldiers. Mr. Lanzilotta says there appears to be another potential solution to that.

Mr. LANZILOTTA. When we were looking at DTS, it was designed

to do TDY and the process was reengineered and the system built

to do TDY. When we looked at two other aspects of travel, one is

mobilization and the other is permanent change of station travel,

DTS did not perform to the standard we wanted. We are looking

now at the implementation of another system called Reserve Travel

System that does a better job and we are looking at a PCS Travel

System that does a better job of doing that.

Instead of having the 42 systems, I think our solution will be 3.

Eventually we will get down to one but we need to fix these problems sooner versus later. One thing is to get to a system that will

do it. The overall solution is not going to be defense travel. The

overall solution is going to be Dimers. What happens to us now is

most of these pay problems aren’t generated because they are pay

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problems, but because there are personnel problems. There is

something in the personnel records that keep the pay from being

correct. A case in point, a reservist is mobilized, so the personnel

tells us he is mobilized. For some reason, he doesn’t come on active

duty, medical or some other problem that he has that he is later

not activated. If the personnel system doesn’t come back and say

he has been demobilized, it is very hard for us to catch him and

catch that with our systems. We know who the active is and who

the reserve is and do bumps to see if anybody is paid on both systems but if someone is paid on the active system and the personnel

doesn’t catch up to tell us he is not supposed to be there, if the

commander doesn’t do a review of his records and tell us that or

if our procedures fail, then we develop a pay problem.

In most cases, they really break down not in the systems but

break down in our procedures and policies that have caused these

problems to occur. We recently went through and I have asked

each of the services to verify that we later weren’t going to find the

same problem in the Navy Reserve, the Air Force Guard and the

Air Force Reserve, that we have a handle on it. If GAO catches us,

we should thank them and correct the problem and look forward

and make sure we don’t have the problems in other areas. Each

Service FM came back and said they reviewed it and don’t believe

they have a problem.

We are still looking for ways to correct our procedures to see if

there is a procedure that will allow us to see these people that are

in between systems, on the active system but should be on the reserve to make sure they are paid the right amount for the service

they have done on the right system.

Mrs. BLACKBURN. We would hope that you can find a solution to

that because coming from a State with thousands of Guardsmen

and Reservists who are deployed, this is something we hear from

the families regularly, that there are irregularities, they have to

wait a long time to get the pay, there is a backlog. There just

seems to be innumerable problems.

I have one other question. Chairman Shays mentioned he had

heard you are working on improving things for 17 years. I have

only been here a year, only had the last hearing and this one and

he is a much more patient person than I am. I remain a bit baffled.

We sit here and talk about this, have a hearing and thank you for

being here. Then we touch base a couple of times watching what

is taking place during the year and talk about the need for leadership in addressing the business modernization, talked about the

need for a timeline and consistently hear we need more money, we

need more money. I am fully convinced this is not something you

can sit here and answer today but it is something I think would

be a good productive exercise for your team and the team that is

going to oversee the modernization of the practices with DOD.

I would love to see a realistic timeline, a realistic leadership

chart and a realistic cost of what this is going to be whether 10

years or 7 years because I think it is unfair to the American people

and to us to continually say, there are big problems out there, we

can’t get our hands around it, we need more money, we need a

technological architecture that is going to work in a framework.

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I am not asking you to answer it today but I am asking you submit in writing something that we can look at so we don’t have to

talk in generalities next year when whomever is your successor

comes in. We can look at some specifics. Having a timeline and an

expectation of when you think a goal can be realistically achieved

is an excellent exercise. It doesn’t matter if it is your children with

summer goals, if it is your family, if it is a business, if it is a governmental agency. I think that would be a most productive exercise. I would encourage you to do that and I would love to see the

finished product.

Mr. PLATTS. Thank you, Mrs. Blackburn.

Mr. Rhodes, talking about the uniformity and consistency, it is

my understanding the Joint Financial Management Improvement

Program has specific standards for testing any new financial management systems to be acquired and any package presented has

met the standards, yet we find a lot of the systems purchased and

put in place are not fulfilling their requirements.

Any insights to why that is the case? It seems we have tried to

set up this uniformity, every system needs to at least do this to get

after that approach and yet we still have the problems of a failure?

Mr. RHODES. JFMIP core requirements are codified. They are,

however, at an extraordinarily high level for me as an engineer or

software engineer to build to. This is why I make my plea for whoever is going to be in charge of transformation to be in charge of

stabilizing the requirements management and bringing the discipline because yes, everybody in Government can look at the

JFMIP core requirements and say fine, these are the requirements

for how you are supposed to report out your financial system. Moving that to where someone actually designs the system is the difficulty and where the parochial nature of the various stovepipes

within any department or agency, whether Department of Defense

or whomever, that is where the difficulty comes. Now it is fine, we

are going to do this function. Now everyone has to agree on the interpretation of what that process definition, that business process

definition, is.

At least from my experience, that is where it all breaks down.

If the requirements management process were disciplined so there

was a feedback loop and I as a designer were giving the information back to those beginning only with the JFMIP core requirements which are not everything anyone needs in order to have a

financial management system but a subset, then the system we are

designing will have more chance of being correct.

Mr. PLATTS. Do I understand that in designing those core requirements there wasn’t enough input, feedback from the technology side?

Mr. RHODES. There is not enough detail. Everyone understands

that who is trying to build a financial management system, whether you are a vendor or an integrator or the Government agency, everyone says yes, we all agree to the JMFIP core requirements, the

subset of requirements but translating those into code is the process that I am making a plea for in terms of definition because you

have to be able to take that highest definition in the core requirement and as you decompose it into system design, you have to

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make certain that your description is concise, specific, not arbitrary

or open to interpretation.

Mr. PLATTS. Otherwise you get lots of discretionary decisions in

the code?

Mr. RHODES. Absolutely. As I say, if you give me a requirement

in a vacuum, I will build my own interpretation of it. I don’t know

any engineer who understands financial management.

Mr. PLATTS. Mr. Lanzilotta.

Mr. LANZILOTTA. If I could emphasize the points Mr. Rhodes has

made, I fully agree. That is why staying the course in development

of the architecture is so important. The architecture is going to define the activities, the processes the Department will use. When we

go to Mr. Rhodes’ first point, the engineer says I get to define what

the end to end process means, no, the engineer doesn’t, the process

owner doesn’t, the owner of the system doesn’t. We go to the architecture and it says it is this. This is what the process is.

We are working with IBM right now because when we look at

this approach, we knew we weren’t going to be able to flip a switch

and have all the business systems redefined. We went to an incremental approach. We said the most pressing issue is to eliminate

our material weaknesses. We went to the finance and accounting

domain and said, out of all the evils here, you are going to be the

lead domain. You are going to build the standard definitions, the

rules, the business rules, do the verifications, define what a financial transaction is, the requirements. When the other domains start

looking at their systems, they will have the standard definition and

these business rules that they have to build to which goes to the

other point. It is not only important that you define the process

from end to end and it is something everybody has and nobody can

have open for discussion, it is also important that inside that are

those definitions and those common points clearly defined.

We are working with IBM to get this done. We have three

deliverables and the proof will be in the pudding to see if that

meets the needs. We need that to go forward. It is important, I feel,

that we stay the course, that we are to the point where we have

this mapped out, we know the interrelationships. Mr. Rhodes is

right, the element of detail isn’t there all the way and it has to be

further defined. This is going to be an ongoing effort. We have the

definitions and they will be available for the other domains to look

at to build systems to.

I agree with Mr. Rhodes that we do have some of the most talented people. I feel our problem isn’t one of quantity. When we

came to the area of financial statements and getting a clean audit,

we looked at the capability to be able to audit our statements. The

growth we are seeing in our budget is when we weren’t doing it,

the money wasn’t there to do the audits. Now we are putting the

money there to do the audits and I have two concerns. The market

won’t bear the capability we need to do the work on our financial

statements.

When we went to BMMP and tried to ramp up this effort about

the definitions, they had to hire 40 accountants. They were slow

because they had a hard time finding 40 CPAs willing to work on

this project. When we start auditing all our statements and developing this capability, if we are to have it by 2007, you need to start

81

putting auditors on in 2005, 2006 and 2007 to get up there, my fear

is the guys aren’t out there, the CPAs aren’t out there to do the

audit work we need and we are going to bid ourselves up.

I agree I have some of the finest CPAs you can find. One is sitting behind me right now. The problem is only one of them is sitting behind me right now. I need more. That is something we have

to deal with as a Government.

I agree on the JMFIP compliance but another reason why we

need to have the architecture and the standardization is the problem we are experiencing right now is in the implementation. These

systems have the core accounting procedures and principles built

into them. Unless you change them, these systems are flexible

enough that you can take a perfectly compliant system and wreck

it. It is in the implementation. To get the implementation right,

you have to have your architecture right, your definitions right,

these common processes defined. ERPs fail in the private industry

because of planning. The Department has the most complex problem and it has to do the planning to make this work.

My last plea in leaving Federal Government is that we stay the

course and don’t change directions after 3 years and try to reinvent

it because eventually we will come back to the same route we are

on because I believe we are on the right route.

Mr. PLATTS. The importance is it is going to pay dividends if we

stay the course, not be impatient, that we need to take what is

there and build on it and not try to start over. I think Congress

trying to recognize DOD not just in financial management but

across the board needing more flexibility has given somewhat unprecedented human resource flexibility which hopefully will help

address some of the needs of financial management, as well as hiring and recruiting and being able to get good people to come in and

stay in the Department.

Mr. LANZILOTTA. The Congress has been very generous helping

implement personnel until Civil Service reform implementation. I

want to thank the Congress for doing that because without it, we

can’t succeed. We need to be able to get the IT folks and bring

them on board, get the accountants and bring them on board. My

concern is how many of them are out there.

Mr. PLATTS. Especially accountants as the SEC is ramped up and

there are lots of entities out there that are competing more and

more within the Federal Government let alone the private sector

as we put more demands on them through some of our new legislation. You are right, it is going to be a tough market.

Earlier you talked about partnership between the Department,

GAO, Congress and all of us working together. In Mr. Kutz’s testimony, GAO obviously spent a lot of time over many years and continue to invest a lot of time and effort in trying to complement the

Department’s efforts and be a partner. He references the fact that

of 24 recommendations regarding the architecture being put in

place, 22 of the 24 recommendations have not been addressed by

DOD. First, Mr. Kutz, what do you mean when you say have not

been addressed and Mr. Lanzilotta if you could respond from a Department perspective why there is not more receptiveness to these

recommendations?

82

Mr. KUTZ. Several have been partially addressed. We have in the

appendix to the report the partially addressed ones and some have

not been addressed at all. I went back and did look at those recently. The most common one that cuts across the ones that have

not been implemented at all relates to the investment technology

management oversight, the oversight of ongoing investments. The

Department has been particularly troubled as to whether or not

they can get their hands around what is going on. Mr. Lanzilotta

said we are now up to 4,000 potential systems. They still don’t

have a good handle on how many systems there are, how much

money is being spent on them, where all those buckets of money

actually are. Not only do you have RDT&E money, procurement

money, working capital fund money, all kinds of different money

being spent on business systems. Getting your hands around this

whole thing is a major challenge.

The corporate governance and management of ongoing investments have been the two areas that we see the slowest progress.

On the governance side, Mr. Lanzilotta has acknowledged that they

have made more progress in recent months. Hopefully they are further along than when our report was finalized.

Mr. LANZILOTTA. Mr. Kutz is too kind. I think there are 42 recommendations not 22. I agree in concept with the GAO recommendations. I think we disagree in implementation of how those

recommendations ought to be placed. One was COO and we have

talked to that as to where we are on that. On the investment

board, I think we have a governance process where it goes with the

domains, steering group, executive steering group, that takes care

of the need of the investment board.

We are going to develop and are in the process of developing a

data base that captures all these automation systems and the

budgetary resources associated with them. Mr. Kutz is right, it is

all in different colors but that is based on appropriation law, before

I can move and tell Congress this is how I think we ought to budget for IT systems, I owe it to the Congress to identify where all

these systems are, to sit down and say they are in working capital

funds and there is all the different business activities in the working capital funds, they are in R&D, O&M, in procurement, in all

the different accounts. When we developed this data base which we

are in the process of doing, we will identify these systems.

We are using OMB Exhibit 300 for the IT 300 as a basis for

starting to get together all these requirements we have on automation systems and try to standardize them all into one system. Right

now I have five data bases of what these systems are. At the end,

I will have one that will have everything. The way we are enforcing

it is if your system ain’t in this data base, it ain’t funded. We are

going to tell the services this is what the data base has in it, if you

want to correct a data base and get your system in there, then do

that. If you don’t, then you lose the money.

I think after we do that, then we can better address the GAO

concerns. It is not that we disagree with the GAO recommendation,

it is how we are implementing it that I think sometimes we disagree on implementation of that recommendation.

Mr. KUTZ. There is a difference between issuing a memo from

headquarters and actually having something done. I think we

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talked about it earlier with the $1 million threshold. That is something where they might have declared victory because the Comptroller issued a memo and said everyone shall follow the $1 million

threshold. The reality is because they don’t have good investment

management controls, nobody follows it. That gets back to the consequences. You get back to some of the themes of the things we are

seeing slower progress on. I think they have a pretty good handle

on the Comptroller and the DFAS systems and lot has happened

there. It is a lot harder to deal with the Army, Navy, Air Force,

Marine Corps and DLA systems from where Mr. Lanzilotta sits

than maybe has acknowledged. I think that is a lot harder nut to

crack than just saying we will take our own systems at DFAS and

within the Comptroller’s control and terminate them or control

them. The other is much, much more difficult.

Mr. LANZILOTTA. Let me say what only a guy who is leaving the

Department would ever say, the proof is in the pudding. Whether

I complied with this recommendation to the extent Mr. Kutz has

said will be known in January because that will be the first time

we actually do a budget request to the Congress based on this new

guidance to the domains and to the services. Whether the memo

was enough or whether we should have done more or the actions

we did, the proof will be in January when we submit a budget request. It is either there or not.

I also need the hammer or something that I have to explain this.

I need to be able to go back to the people working this problem and

say this is how we have to have it done because in January or February, I am going to be called up there to answer what we got

done.

Mr. PLATTS. The dialog between the Department and GAO has

been pretty constant and my hope is that now and in the future

that partnership will continue because there is that shared goal we

want, good processes being put in place and benefiting the personnel at the Department making decisions for the American public.

I have two final areas. One is specifically about how much we are

spending on programs that are then terminated. DFAS is the subject area. The two systems totaling $179 million in GAO’s report

last year, in March 2003, talked about the Defense Procurement

Payment System, and the Defense Standard Disbursing System

and they were terminated. My understanding is there is another

system, the Corporate Warehouse System at DFAS that is still unjustified or unproven that we have already spent $129 million on.

What safeguards are we taking? I think the answer is we get this

enterprise system in place and that is going to allow for better and

more informed decisions to be made on what we invest in or what

we don’t. In the interim right now, $179 million is gone and no

benefit, another $129 million perhaps at risk. What are we doing

in the interim to really make sure we are not going to keep repeating these expenditures for naught?

Mr. LANZILOTTA. The systems we terminated were Comptroller

systems. We did not feel they were ever going to be compliant or

were ever going to forward the ball. We looked at the life cycle

costs of these systems and there have been others we have canceled, and we determined the life cycle cost was not justified for

fielding these systems. So we did away with them.

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On the data warehouse, DFAS, we are using that system at the

same time we are evaluating it. It contains my vendor pay, my

370,000 registered vendors I use when corporations or businesses

submit their invoices to me. I need this. As we go along, these systems are all going to be eliminated. As we go along on the new architecture, these systems were designed and put into place well before the architecture started and are now coming to fruition. We

have a generation of new systems coming that we are looking to

see if they fit in the architecture and do what we want to do.

We are not going to be able to replace all these systems but I

think I would be misleading you to say we are not going to terminate other systems. My goal is to terminate these systems because

I save on the operating cost of these and if they are not going to

get us to where we need to go, then we need to reduce our losses

and cut them out. In the future, it is much more grave if we design

a system under the new architecture and it doesn’t work. If it

doesn’t fit into our plan, I think that is much more serious. I expect

a rash of systems that were developed in the early or mid 1990’s

before we saw where they fit in the architecture. It seems so amazing to me that we have 42 travel systems, they are going to go. At

the end of the day, I think in the short term we will have three

and then ultimately one and all the other systems need to go and

be terminated.

Each one has someone who thinks they are better than sliced

bread. I think it is important to have congressional support because your constituents if they own one of these are going to say,

the Department spent all this money on a system they are now terminating. It happens to be in your district, what do you think

about that but it is coming.

Mr. PLATTS. That is a major issue here. If you look at $19 billion,

major contracts, I don’t know how many jobs are behind that in

how many districts, that is a major issue and it is important for

Congress to be on board for this effort as a partner as well.

Mr. Kutz, any other comments on the interim efforts? I understand some systems will be terminated because of where they were

in the pipeline but we are not continuing to repeat that as we go

forward?

Mr. KUTZ. I look at the architecture a little different than the

stuff we saw with the two systems we looked at today, the BSM

and LMP systems where it has guiding principles versus the issues

we saw with respect to those two projects even though they weren’t

designed to be corporate solutions, so they were flawed from the

start.

The other issues we saw requirements and testing were project

management issues and we see this across the Department. You

can design the architecture which would be like designing what

you want your house to look like, but unless you have people who

can actually build it and do the project management, you are never

going to be successful. So I think there is a separate aspect to this

that needs to get some sunshine at the Department of Defense.

That is actually day to day project management of going through

and implementing what Mr. Rhodes talked about with an off the

shelf software package from SAP for example.

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Mr. RHODES. The only point I would make is that at its highest

level, an architecture is trying to help you design your home, but

the guiding principle is you need shelter. That is not necessarily a

home but you have to have that level of abstraction, I need to be

warm, dry, cover from the elements and then you can start talking

about why don’t we build a house and then the house needs a roof

and the roof needs shingles.

The architecture is a guide, the No. 1 artifact of the discipline

of management. The architecture is not something that you define,

you bind and put on the shelf. Every engineering principle I have

ever used in my 25 years has been a DOD engineering principle.

They invented them, they come up with them and they sit on the

shelf and get ignored. They make consultants a lot of money being

able to train people on how to do this stuff but we are paying for

these ideas and this rigor and this discipline several times and it

is still not coming through.

The architecture is extraordinarily important but there is ‘‘endto-end’’ in terms of the system and there is ‘‘end-to-end’’ in terms

of management. It has to go from the architecture down to the lowest level of the organization and the development process.

Mr. LANZILOTTA. Not that I disagree with Mr. Rhodes because he

is correct but the other aspect of it I think we need to emphasize

is the Department has had tremendous value just going through

the process of designing what an architecture is, figuring it out.

When I started this 3 years ago, I had no idea what an architecture

looked like, I had no idea of why this was important. By taking the

Department through the process, in some cases kicking and

screaming, we have learned a lot on how to make this work. Mr.

Rhodes is right if we make it shelfware, then shame on us but I

think that is what your next hearing will be about to make sure

we don’t do that.

Mr. PLATTS. Final question, looking into your crystal ball, you

talked about 2007 and a clean audit opinion, what is the realistic

nature of that goal and will it be achieved through a good system

in place versus heroic efforts to get a clean audit opinion? Are we

on track based on the foundation you have laid in the past 3 years

as we go forward that we really are going to be where we hope to

be in 2007?

Mr. LANZILOTTA. I don’t think in 2007—I think our first step is

we are going to get a qualified opinion and then an unqualified

opinion. I think our first step is going to be a heroic effort through

procedures to get this done in 2007. I don’t think we are going to

have the systems in place and the problem is right now the Department takes 10 years to field a major system. I can’t get a system

in place in 2007, it just isn’t going to happen. I think we need the

heroic effort and the reason I am pushing that is because if I don’t

have a milestone out there, if I don’t say 2007, say climb tall mountains, leap tall buildings, we won’t make the progress we need to

get this done.

Right now, the services are going toward 2007. We will probably

get a qualified opinion and then an unqualified opinion. I think

that is the nature of the way accountants think. I started off on

Tri-Care for life and because it is a new fund, I couldn’t get an unVerDate 11-MAY-2000 12:40 Dec 17, 2004 Jkt 000000 PO 00000 Frm 00091 Fmt 6633 Sfmt 6633 D:\DOCS\96947.TXT HGOVREF1 PsN: HGOVREF1
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qualified opinion basically because it is a new fund, so I understand how this works.

There are going to be problems but I need to have a milestone,

need to say it is 2007 to be able to drive people to a solution. It

is going to be procedural. Like environmental liabilities, it is not

a systems problem to begin with, it is a process problem. After we

fix the process, we should be able to get there. I think we will

make progress on getting our liabilities ready for audit.

When we talk about what we have to do we have a whole list

of things and when we think they will be ready for audit. It won’t

be 2007. I hope you will see progress each year, that we get better.

We have eliminated two material weaknesses, hopefully we can

eliminate a few more and get down to where arbitrary weaknesses

are no longer material and 2007 is aggressive.

Mr. PLATTS. Mr. Kutz.

Mr. KUTZ. We haven’t seen a link between the business systems

modernization program and the 2007 opinion. He just said there

isn’t a link because the systems aren’t going to be line to make that

happen. I would concur, that for them to reach 2007, it would require a heroic effort. The issue is how much would that cost and

is that even feasible?

Mr. PLATTS. And is it worth the investment?

Mr. KUTZ. Is it worth the investment and will that investment

then take away from the longer term? It is not like we have unlimited resources of the Department of Defense from a personnel

standpoint to do that. I do think heroic effort is probably also unlikely to happen. I do think it would be important to measure their

progress from the perspective environmental liabilities and some

interim milestones. Those are important achievements they can

make between now and 2007 that should be considered successes.

I would agree that things like environmental liabilities and all

liabilities, that DOD have an opportunity to be cleaned up and resolved. So those are good things. We need to keep pursuing those

and from oversight, you need to try to hold them accountable for

that along with the more important part which is providing world

class support to the war fighter which is what this is all about.

Mr. PLATTS. I agree having a defined year as a goal kind of keeps

everyone working toward it in a more aggressive fashion but your

successor and the department as they look at this effort I hope that

we don’t get to where it is a goal set in stone, that we will spend

x dollars just to have a clean opinion but through heroic efforts not

through systematic improvements that we are really after and that

we have a clean opinion because a system is in place that generates it. That means we have a system in place that is usable day

in and day out throughout the year and not just something that

looks good at the end of the year.

I hope the Department will keep pushing aggressively in having

that year as a goal but at some point make the decision it is not

going to be a wise investment to say we are going to have a clean

opinion if it is short-lived.

That concludes the questions I have. All three of you, I appreciate your insights and wealth of knowledge you each have and

have shared with us. We will look to continue to work with you in

your current positions. Mr. Lanzilotta, we wish you well in your

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new position and appreciate the past years of service. How many

years combining your Senate and DOD service, how many years altogether?

Mr. LANZILOTTA. The truth of the matter is I am retired military

and I have never worked private sector so this will be the first time

in over 30 years.

Mr. PLATTS. What branch?

Mr. LANZILOTTA. Army.

Mr. PLATTS. Thank you for all your service and especially your

service in uniform. I am not a veteran myself and you all who have

and do wear the uniform set the example for me and everyone else

in public service. We wish you well.

We will keep the record open for 2 weeks for additional information submitted. We appreciate everyone’s participation. This hearing stands adjourned.

[Whereupon, at 4:22 p.m., the subcommittee was adjourned, to

reconvene at the call of the Chair.]

[The prepared statement of Hon. Dennis J. Kucinich follows:]

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