U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

29–709 PDF 2006

DEPARTMENT OF HOMELAND SECURITY INFORMATION TECHNOLOGY MANAGEMENT CHALLENGES AND THE FUTURE OF eMERGE2

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY

OF THE

COMMITTEE ON GOVERNMENT REFORM

AND THE

SUBCOMMITTEE ON MANAGEMENT,

INTEGRATION, AND OVERSIGHT

OF THE

COMMITTEE ON HOMELAND SECURITY

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

MARCH 29, 2006

Serial No. 109–173

Committee on Government Reform

Serial No. 109–70

Committee on Homeland Security

Printed for the use of the Committees on Government Reform and Homeland

Security

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

JEAN SCHMIDT, Ohio

——— ———

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

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

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

DAVID MARIN, Staff Director

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY

TODD RUSSELL PLATTS, Pennsylvania, Chairman

VIRGINIA FOXX, North Carolina

TOM DAVIS, Virginia

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

EDOLPHUS TOWNS, New York

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

HENRY A. WAXMAN, CALIFORNIA

MIKE HETTINGER, Staff Director

TABETHA MUELLER, Professional Staff Member

ERIN PHILLIPS, Clerk

ADAM BORDES, Minority Professional Staff Member

(III)

COMMITTEE ON HOMELAND SECURITY

PETER T. KING, New York, Chairman

DON YOUNG, Alaska

LAMAR S. SMITH, Texas

CURT WELDON, Pennsylvania, Vice

Chairman

CHRISTOPHER SHAYS, Connecticut

JOHN LINDER, Georgia

MARK E. SOUDER, Indiana

TOM DAVIS, Virginia

DANIEL E. LUNGREN, California

JIM GIBBONS, Nevada

ROB SIMMONS, Connecticut

MIKE ROGERS, Alabama

STEVAN PEARCE, New Mexico

KATHERINE HARRIS, Florida

BOBBY JINDAL, Louisiana

DAVE G. REICHERT, Washington

MICHAEL MCCAUL, Texas

CHARLIE DENT, Pennsylvania

GINNY BROWN-WAITE, Florida

BENNIE G. THOMPSON, Mississippi

LORETTA SANCHEZ, California

EDWARD J. MARKEY, Massachusetts

NORMAN D. DICKS, Washington

JANE HARMAN, California

PETER A. DEFAZIO, Oregon

NITA M. LOWEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

ZOE LOFGREN, California

SHEILA JACKSON-LEE, Texas

BILL PASCRELL, JR., New Jersey

DONNA M. CHRISTENSEN, U.S. Virgin

Islands

BOB ETHERIDGE, North Carolina

JAMES R. LANGEVIN, Rhode Island

KENDRICK B. MEEK, Florida

SUBCOMMITTEE ON MANAGEMENT, INTEGRATION, AND OVERSIGHT

MIKE ROGERS, Alabama

JOHN LINDER, Georgia

MARK E. SOUDER, Indiana

TOM DAVIS, Virginia

KATHERINE HARRIS, Florida

DAVE G. REICHERT, Washington

MICHAEL MCCAUL, Texas

PETER T. KING, New York, Ex Officio

KENDRICK B. MEEK, Florida

EDWARD J. MARKEY, Massachusetts

ZOE LOFGREN, California

SHEILA JACKSON-LEE, Texas

BILL PASCRELL, JR., New York

BENNIE G. THOMPSON, Mississippi, Ex

Officio

(V)

C O N T E N T S

Page

Hearing held on March 29, 2006 ............................................................................ 1

Statement of:

Williams, McCoy, Director, Financial Management and Assurance, Government Accountability Office, accompanied by Keith A. Rhodes, Chief

Technologist, Applied Research and Methods, Center for Technology

and Engineering; Randolph C. Hite, Director, Information Technology

Architecture and Systems Issues, U.S. Government Accountability Office; Eugene Schied, Deputy Chief Financial Officer, Department of

Homeland Security; and Scott Charbo, Chief Information Officer, Department of Homeland Security .................................................................. 5

Charbo, Scott ............................................................................................. 70

Hite, Randolph C. ...................................................................................... 28

Schied, Eugene .......................................................................................... 68

Williams, McCoy ........................................................................................ 5

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

Hite, Randolph C., Director, Information Technology Architecture and

Systems Issues, U.S. Government Accountability Office, prepared statement of ........................................................................................................... 31

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

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

Schied, Eugene, Deputy Chief Financial Officer, Department of Homeland

Security; and Scott Charbo, Chief Information Officer, Department of

Homeland Security, prepared statement of ................................................ 72

Thompson, Hon. Bennie G., a Representative in Congress from the State

of Mississippi, prepared statement of ......................................................... 110

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

of New York, prepared statement of ........................................................... 108

Williams, McCoy, Director, Financial Management and Assurance, Government Accountability Office, prepared statement of .............................. 7

(1)

DEPARTMENT OF HOMELAND SECURITY INFORMATION TECHNOLOGY MANAGEMENT

CHALLENGES AND THE FUTURE OF

eMERGE2

WEDNESDAY, MARCH 29, 2006

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY, COMMITTEE ON GOVERNMENT REFORM, JOINT WITH

THE SUBCOMMITTEE ON MANAGEMENT, INTEGRATION,

AND OVERSIGHT, COMMITTEE ON HOMELAND SECURITY,

Washington, DC.

The subcommittees met, pursuant to notice, at 3:05 p.m., in room

2247, Rayburn House Office Building, Hon. Todd Russell Platts

(chairman of the Subcommittee on Government Management, Finance, and Acountability) presiding.

Present from the Committee on Government Reform, Subcommittee on Government Management, Finance, and Accountability: Representative Platts.

Present from the Committee on Homeland Security, Subcommittee on Management, Integration, and Oversight: Representatives

Rogers, Meek, and Jackson Lee.

Staff present from the Committee on Government Reform, Subcommittee on Government Management, Finance, and Accountability: Mike Hettinger, staff director; Dan Daly, counsel, Tabetha

Mueller, professional staff member; Erin Phillips, clerk; Adam

Bordes, minority professional staff member; and Earley Green, minority chief clerk.

Mr. PLATTS. The Government Reform Subcommittee on Government Management, Finance, and Accountability, joint with the

Homeland Security Subcommittee on Management, Integration,

and Oversight, will come to order.

I would first like to welcome Chairman Rogers, chairman of the

Homeland Security subcommittee, for joining us in this important

hearing today. We will be joined shortly by ranking members of

both committees as well. And if they have opening statements at

that time when they join us, we will allow them to do so or submit

them for the record.

I am pleased to be holding this hearing with the other subcommittee. I want to thank Chairman Rogers and his subcommittee for their important work on these issues. Sometimes management issues are overlooked in the larger policy debate, but sound

management is absolutely critical to the success of any program.

2

One of the primary reasons for the creation of the department

was to streamline processes and realize efficiencies. In short, to

spend less on overhead and more on protecting America. The effective use of information technology is a key tool in reaching that

goal, and today’s hearing will take an important look at the initiatives now underway at the department.

The success of eMerge2 has broad implications for the department, and the shared services model that is being employed will

serve as an important test case for the Government-wide Financial

Management Line of Business initiative being proposed by the Office of Management and Budget.

Proper management of information technology, the eMerge2 program in particular, is a top priority for our subcommittee, something we have followed closely for the past 3 years, and it is something we will continue to focus on.

I look forward to hearing from our witnesses here today and appreciate the work that you all do in supporting DHS.

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

3

4

Mr. PLATTS. I now have the pleasure of recognizing the chairman

of the Homeland Security subcommittee, Chairman Rogers.

Mr. ROGERS. Thank you.

Today, we are holding a joint hearing to examine the status of

the department’s financial management resources and the integration of its information technology systems.

I would first like to thank Chairman Platts and Ranking Member

Towns for working with us on this hearing today. Our two subcommittees do share a common goal of strengthening the department’s financial management while safeguarding taxpayer dollars.

I would also like to welcome our panel of distinguished witnesses

and thank them for being here today. I know you are busy, and it

is very kind of you to take the time to be with us.

When the department was formed in March 2003, it inherited 19

different financial management systems. Through consolidation,

that number is now down to eight. In 2004, the department announced a new initiative referred to as eMerge2. This effort would

bring the entire department under one centralized financial management system.

To accomplish this, DHS has spent approximately $18 million to

begin the program, which was estimated to cost over $229 million.

Late last year, however, the department abruptly canceled the contract and shifted the direction of eMerge2.

Today, we hope to hear what went wrong with the contract,

what, if anything, the department received for its $18 million, and

what the department plans for the future of eMerge2. We also will

examine the steps the department is taking to integrate its information systems.

I was disappointed to see, for example, that the department had

recently received an ‘‘F’’ on the Government Reform Committee’s

annual computer security scoreboard for the 3rd year. Today, I

hope we will find out why that grade hasn’t improved.

And with that, I will be happy to yield back to Chairman Platts,

and thank you again for this joint hearing.

Mr. PLATTS. Thank you, Chairman Rogers.

And we will proceed to our witnesses. We are pleased to have

four distinguished guests with us today as part of this hearing. As

part of our process here of the subcommittee, we would ask all four

of you to first stand and be sworn in.

[Witnesses sworn.]

Mr. PLATTS. Thank you. You may be seated.

A clerk will note that the witnesses affirmed the oath.

We are pleased to have with us, first, Mr. McCoy Williams, Director of Financial Management and Assurance, the Government

Accountability Office; Mr. Randy Hite, Director, Information Technology Architecture and Systems, Government Accountability Office; Mr. Eugene Schied, Acting Chief Financial Officer, Department of Homeland Security; and Mr. Scott Charbo, Chief Information Officer, Department of Homeland Security.

All four of your written testimonies have been submitted for the

record. And again, we appreciate you being here with us.

Mr. Williams, we are going to start with you, if you would like

to proceed with your opening statement?

5

STATEMENTS OF McCOY WILLIAMS, DIRECTOR, FINANCIAL

MANAGEMENT AND ASSURANCE, GOVERNMENT ACCOUNTABILITY OFFICE, ACCOMPANIED BY KEITH A. RHODES,

CHIEF TECHNOLOGIST, APPLIED RESEARCH AND METHODS,

CENTER FOR TECHNOLOGY AND ENGINEERING; RANDOLPH

C. HITE, DIRECTOR, INFORMATION TECHNOLOGY ARCHITECTURE AND SYSTEMS ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; EUGENE SCHIED, DEPUTY CHIEF FINANCIAL OFFICER, DEPARTMENT OF HOMELAND SECURITY;

AND SCOTT CHARBO, CHIEF INFORMATION OFFICER, DEPARTMENT OF HOMELAND SECURITY

STATEMENT OF McCOY WILLIAMS

Mr. WILLIAMS. Thank you.

Mr. Chairmen, it is a pleasure to be here today to participate in

this joint oversight hearing on the Department of Homeland Security’s ongoing efforts to effectively manage its information technology projects.

Today, we would like to provide our perspectives on the importance of DHS following best practices in developing and implementing its new financial management systems.

Specifically, we would like to discuss the recurring problems we

and others have identified in agencies’ financial management systems development and implementation efforts, point out key financial management system modernization challenges at DHS, highlight the building blocks that form the foundation for successful financial management system implementation efforts.

First, our work and that of the IGs over the years has shown

that agencies have failed to employ accepted best practices and systems development and implementation that can collectively reduce

the risk associated with implementing financial systems. These are

commonly referred to as disciplined processes.

In our recently issued report, we identified key causes of failures

related to disciplined processes, such as requirements management,

testing, and project management. As a case in point, we recently

reported that the initial deployment of a $1 billion Army system intended to improve depot operations was still not meeting users’

needs. One reason was a breakdown in the requirements management process.

Agencies have also faced challenges in implementing financial

management systems due to human capital management issues related to strategic work force planning, human resources, and

change management. By not identifying the right people with the

right skills, agencies reduce their chances of successfully implementing and operating new financial management systems. For example, we identified human capital problems in systems projects at

IRS, HHS, and VA.

Second, DHS faces unique challenges in attempting to develop

integrated financial management systems across the breadth of

such a large and diverse department. DHS inherited a number of

redundant financial management systems from 22 diverse agencies.

Among the weaknesses identified in prior financial audits were insufficient internal controls or processes to reliably report basic financial information.

6

According to DHS officials, they recently decided to change the

direction of eMerge2 project, which was supposed to consolidate

and integrate the department’s financial accounting and reporting

systems. DHS’s revised shared services approach will allow DHS

components to choose from existing financial management service

providers, mainly from within DHS.

Third, based on industry best practices, we have identified four

key concepts that we believe will be critical to DHS’s ability to successfully complete its planned migration to financial management

shared services providers.

The four concepts are developing a concept of operations, defining

standard business processes, developing a strategy for implementing DHS’s approach across the department, and defining and effectively implementing disciplined processes. Careful consideration of

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

In closing, with DHS at an important crossroads in implementing

financial management systems, it has an excellent opportunity to

use these building blocks to form a solid foundation on which to

base its efforts and avoid the problems that have plagued so many

other Federal agencies.

This concludes our statement. We will be pleased to answer any

questions.

Thank you.

[The prepared statement of Mr. Williams follows:]

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Mr. PLATTS. Thank you, Mr. Williams.

Before we move to Mr. Hite, we are pleased to be joined by the

Homeland Security subcommittee ranking member, the gentleman

from Florida, Mr. Meek. And I believe you would like to make an

opening statement?

Mr. MEEK. Thank you, Mr. Chairman.

I will make some brief comments, and I will enter the rest of my

statement for the record.

I am glad that both of our subcommittees have come together to

have this hearing. This is the first time the Homeland Security and

Government Reform Committees have had an oversight joint hearing as far as we know here, here at this level.

But the fact that these two committees have come together today

says a lot about the level of concern for Department of Homeland

Security. I can tell you, as the ranking member of the oversight

committee, the Homeland Security subcommittee, I am becoming

more and more concerned with these kinds of hearings after the incident has happened and after the taxpayers’ money has been

wasted.

I am also very concerned about the fact there is so much attrition

over at the Department of Homeland Security, so that once you set

the plan to recover or to make sure it never happens again, you

have a whole other set of players in place. I am interested in learning today at this hearing how the corrections to make sure that the

incident that has happened never happens again and jeopardize

national security is put into place so that we don’t have to have another hearing such as this one.

This has very serious consequences for our national security, and

I agree with many of the points that were made in the GAO report.

Looking forward to hearing more about it.

And with that, Mr. Chairman, I would like to just enter the rest

of my comments for the record so that we can get the testimony,

and we will have time for question and answers, sir.

Thank you. Yield back.

Mr. PLATTS. Thank you, Mr. Meek.

And without objection, the rest of your testimony is entered into

the record.

And we will proceed, Mr. Hite, if you would like to proceed with

your opening statement?

STATEMENT OF RANDOLPH C. HITE

Mr. HITE. Thank you, Chairman Platts, Chairman Rogers, Ranking Member Meek.

Let me begin by commending this subcommittee—or both subcommittees for holding this hearing on IT management at DHS, a

subject that is, without question, as challenging for the department

as it is important. Suffice it to say that while effective IT management is not the end all and be all when it comes to transforming

the department, this transformation cannot occur without it.

My statement today addresses the state of IT management at

DHS and what I view as two interrelated planes. The first is establishing institutional or corporate-level IT management controls,

and the second is actually managing individual IT programs in accordance with these controls.

29

In effect, this collection of control mechanisms can be viewed as

providing the means to desired end, that is, delivering systems that

are on time and on budget and produce required capabilities and

promised benefits.

My bottom-line message is there has been mixed progress on

these fronts. But overall, the department is not yet where it needs

to be.

To expand on this bottom line, let me first set the stage by identifying some of these institutional controls that I am referring to,

all of which are spelled out in my written statement, and then

focus on the department’s performance thus far in implementing

them, using key system investments as examples.

One control is having and using an enterprise architecture,

which can be viewed as a department-wide operational and technological blueprint that provides an authoritative frame of reference

to guide and constrain the structure and the content of IT investments.

Another is applying engineering and acquisition discipline and

rigor when defining and designing and developing and testing and

deploying and maintaining these IT systems.

A third is having people with the right knowledge, skills, and

abilities to execute all of these disciplines. And transcending each

of these controls is an empowered Chief Information Officer to

make it all happen.

Over the last 3 years, we have reported on varying levels of

progress in these areas. For example, we pointed out that the department’s first version of its enterprise architecture provided a

foundation upon which to build, but it was missing important content which limited its utility.

Since then, the department has improved its approach to managing the architecture and has issued updated versions of it. The latest version includes some of the missing scope, and the department

plans to keep building on this.

We also found the department has introduced a standard template for capturing information about investments alignment with

the architecture, although it has yet to document a methodology

with explicit criteria for determining the degree of alignment.

As another example, the department continues to recruit, hire,

and train IT professionals, but has yet to develop a strategic approach to IT human capital management that provides for, first,

understanding the current and needed work force numbers and

qualifications and then pursuing explicit strategies for filling current and projected gaps in these capabilities.

Now, concurrent with its ongoing efforts to strengthen corporate

IT governance, the department has continued to invest heavily in

new and enhanced systems, including IT infrastructure, such as

shared networks, consolidated data centers, and IT systems better

known for their catchy titles, such as ACE and US-VISIT and Secure Flight, to name a few.

To the department’s credit, some of these investments have resulted in increments of capabilities to assist DHS employees in

doing their jobs. Examples include the initial core of a departmentwide sensitive, but unclassified network known as OneNet, the

entry side of US-VISIT, and the first four releases of ACE.

30

However, other capabilities, such as the Atlas infrastructure initiative, the exit side of US-VISIT, and Secure Flight as a whole,

are not operational after years of work.

We have also reported that these and other IT investments have

suffered from management weaknesses that both have caused problems and increased the risk of future problems.

Examples include poor requirements definition, inadequate testing, limited program planning, unreliable cost and schedule estimating, poor security management, limited staffing, inadequate

risk management, absence of independent verification validation,

limited earned value, to name more than a few. Some of these

weaknesses have been corrected on some programs, but others

have not.

So having said all of this, what needs to be done? Part of the answer lies in the litany of recommendations that we have made to

address each of these institutional and program-specific areas. To

the department’s credit, it has largely agreed with these recommendations, and some have been implemented. However, most

are still works in process.

In my view, our recommendations provide a comprehensive

framework for strengthening DHS’s IT management and increasing

the chances that its investments will successfully play their roles

in transforming how the department operates and how well it performs. We look forward to working constructively with the department in implementing them.

This concludes my statement. I would be happy to answer any

questions whenever you choose.

[The prepared statement of Mr. Hite follows:]

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

Mr. PLATTS. Thank you, Mr. Hite.

Mr. Schied.

STATEMENT OF EUGENE SCHIED

Mr. SCHIED. Thank you, Chairman Platts, Chairman Rogers,

Ranking Member Meek, for allowing me this opportunity to testify

before you regarding the Department of Homeland Security’s plans

for its financial management systems and the future of the

eMerge2 program.

The Department of Homeland Security continues to make

progress in improving financial management, but the progress admittedly does not come easy or quick.

Our accomplishments to date reflect the rigorous effort of our financial management personnel and are evidenced by things such

as the timely completion this past November of DHS’s consolidated

financial statements for the first time and the submission of those

statements for audit, the unqualified opinion on the balance sheet

this past year by the Customs and Border Protection, our work on

internal controls to date, and OMB’s A–123 implementation and

implementation of the OMB A–123 requirements, including the

completion this past year of the GAO assessment tool used by DHS

components to support the assertion made by the Secretary at the

end of the year.

And financial systems and accounting service successes to date

that include, as mentioned by Chairman Rogers, the reduction of

the number of financial service providers to date from 18 down to

8, a CBP and Secret Service implementation successful of new financial management systems, and the U.S. Coast Guard and

FLETC becoming financial service providers to other components

within the Department of Homeland Security.

Particularly regarding systems, and specifically the department’s

eMerge2 program, it did not progress as we had originally planned,

and DHS still needs to improve greatly its resource management

systems. We have some systems that are aging. Others that fail to

meet user requirements. Some that are not fully integrated between finance, procurement, and asset management.

To meet these needs, rather than acquiring, configuring, and implementing a new system solution, as we initially started with the

eMerge2 program, we are now looking to leverage investments that

have already been made, both inside DHS and outside.

By closely monitoring contract performance under the initial attempt at the eMerge2 solution implementation, we were able to determine really within several weeks of letting the initial eMerge2

task order that we had issues with how the project was progressing.

We determined that the project had veered unacceptably off

schedule, and we worked with the contractor in an attempt to get

the project back on track. But when the risks ultimately were

deemed to be too great, we chose to allow the blanket purchase

agreement to expire and to retool our approach to meet our systems needs.

Specifically, the primary reasons we decided to stop with the effort to build the new system solution include contractor performance issues; the challenge of undertaking a major change while still

69

building the basic organizational capabilities within DHS to manage a project of this magnitude; consideration of the overall financial management issues faced by DHS, such as those cited in the

annual financial audits; and recognition that recent DHS component financial systems and servicing successes, such as those I

have just mentioned, presented viable alternatives to standing up

a new system.

We are now in the replanning effort of our eMerge2 effort to improve financial systems. We are looking at leveraging system investments that have been made to date, not only those within

DHS, but also at the OMB financial management centers of excellence. And we are developing a 5-year plan not only for the improvement of financial management, but also how improvements in

financial management services have to tie in with systems including internal controls and financial reporting.

The eMerge2 program is an important element of improving financial management in DHS, but it is vital as DHS moves forward

that the eMerge2 program not be viewed as separate from the larger context of financial management, which includes not only systems, but people and processes.

Our efforts to fix audit weaknesses, improve financial management, strengthen internal controls, and modernize financial systems are all interrelated activities. Accordingly, before jumping

headlong into further systems and service provider changes, DHS

has to make sure that the prerequisite steps of solidifying financial

management are taken.

Central to eliminating all of DHS’s reported material weaknesses

and obtaining a clean financial statement audit opinion is a credible and enforceable corrective action and remediation process. This

year, DHS is entirely revamping the corrective action process. It

will be more standardized, and it will be more disciplined.

Among our changes for this year are identifying root causes and

underlying issues of our pervasive material weaknesses, particularly those involving fund balance with Treasury and financial reporting; formalizing a corrective action process through a management directive, through guidance, through training, then utilizing

the authority from the Office of the Secretary to overcome cultural

shifts and secure management commitment; leveraging an automated tool to help us track our corrective action process.

We will also be partnering with the inspector general’s office to

ensure that our progress is monitored and that management is

held accountable for the progress.

In conclusion, while the eMerge2 program did not progress along

the path we had originally envisioned, we managed the project in

such a way that enabled us to minimize our risk and make course

corrections before substantial sums of taxpayer dollars were expended.

We are now moving along a path that will enable us to achieve

our original goals of providing decisionmakers with critical resource

management information, but at less risk to the Government. The

new approach will also enable us to better incorporate needed improvements in DHS financial management practices into the design

and rollout strategy of our new approach.

70

Thank you again for the opportunity to testify here today, and

I especially thank you for your leadership and continuing support

in Homeland Security and its management programs. And I would

be happy to answer any questions.

Mr. PLATTS. Thank you, Mr. Schied.

Mr. Charbo.

STATEMENT OF SCOTT CHARBO

Mr. CHARBO. Thank you, Chairmen Platts and Rogers, Ranking

Member Meek.

I would like to focus my comments on capital control processes

and IT governance within the Department of Homeland Security.

Currently at DHS, the IT Strategic Plan and Enterprise Architecture are developed from the DHS Strategic Plan, the Future

Years Homeland Security Program [FYHSP], and the Secretary’s

Planning Priorities. These assist in framing our governance processes as we manage IT programs.

The department’s current IT budget is controlled and invested by

the Capital Planning and Investment Control [CPIC] process. The

department’s enterprise architecture process, coupled to our CPIC

process, ensures the department optimally invests and manages its

annual budget.

The investment strategy at the department is taking a review of

the systems via portfolio view. These portfolios are managed

through a Joint Resource Council [JRC], of the department leadership, then an IRB board, which reviews for major investments by

each of those portfolios.

Portfolio investments must meet specific criteria in order to be

continuously funded. They must align to the DHS mission, have

clear performance metrics. They must meet program and project

control criteria as measured by earned value and demonstrate delivery of discrete technical capability at key milestones throughout

the life cycle of the investment.

In addition, the investment performance is assessed against the

entire portfolio to ensure that budget dollars are allocated to initiatives that are delivering the most value to the mission.

Our strategy of alignment, integration, and architecture is centered on the Technical Reference Model of the enterprise architecture. The TRM is used to establish standards and initial integration throughout DHS. These standards are enforced through the

EA governance process.

The eventual goal is to align requirements and reduce the number of products being used for particular functions to the standard

products laid out in the TRM. We feel this will enhance information sharing as well.

The department has the proper IT governance for its programs

through the CPIC process and the Enterprise Architecture Board

for the enterprise architecture. A strong part of this governance is

the CIO Council. This consists of the department CIOs and the

CIOs of the major components. This council provides a collaborative

forum for DHS-wide IT decisionmaking, allows for the socialization

of these decisions, and acts as the architecture board that is

chaired by myself.

71

The benefits of the council finalizing and disseminating the EA

and CPIC processes are many fold. It aligns the investment decisions to the FYHSP goals and objectives, balances DHS resources

across transformational portfolios and objectives, identifies

redundancies in integration opportunities across DHS, and it maintains enterprise-level OMB, PMA, and congressional compliance.

As the department moves forward with eMerge2 to achieve a

clean financial opinion, standardization of DHS accounting structure and financial management business rules, processes, and procedures, those same principles mentioned—of proper program management, requirements alignment, IT governance, and risk mitigation—will be applied.

Thank you. I look forward to your questions.

[The prepared statement of Messrs. Schied and Charbo follows:]

72

73

74

75

76

77

78

79

80

81

Mr. PLATTS. Thank you, Mr. Charbo, and, again, all four of our

witnesses for your written testimony and oral statements.

We will go into questions, and we will try to stay roughly to the

5-minute alternation between the Members.

Mr. Williams, Mr. Hite, if we could start with kind of the big picture? And GAO has done a yeoman’s job of trying to work with the

department’s agencies in putting forth the principles that your

statement is talking about of what you need to do up front before

moving forward with a major overhaul in your financial management plans.

And yet despite your efforts, we have seen some challenges in

how that has moved forward across the Federal Government, including here, where we had about $9 million spent on the initial

eMerge2 plan and then a decision not to go that route and start

over.

In your combined experiences, in looking at the Federal Government compared to the private sector, how common what we are

seeing in the Federal Government, whether it be DHS or we have

seen it with DOD a number of times with huge sums—as much as

$130 million spent before we pull the plug—how similar is that in

the private sector, or does the private sector do a better job of kind

of pre-planning and weighing all of those considerations before

moving forward?

Mr. HITE. One thing I would mention to start off is it is a lot

easier for GAO to point out what should be done than to actually

do it. So doing it is the harder part. So I just want to recognize

that on the part of the department.

But comparing public sector and private sector, a couple of things

come to mind. One of which, similar outcomes, unsuccessful outcomes in the private sector are not going to get the publicity that

they are going to get in the public sector. There is just not that

kind of transparency that goes on.

So my reading has shown that there are ample examples in the

private sector where particularly COTS-based solutions have not

been implemented successfully. And the reasons they have not

been successful are pretty much the same as we found—have found

across the board in the Federal Government.

They deal with the fact that when—the premise or the supposition that is made by some when you are implementing a COTS

solution is the product exists. All there is—all you have to do is implement it. What is going to take so long, or what is the big deal?

Let us move this thing along. Let us have it in place and operating

in a matter of months.

But the reality of it is implementing a COTS solution is as difficult as it is designing and developing and implementing a custom

solution. You still have to go through the same type of rigor and

discipline in doing so, in clearly defining your requirements and

making sure that they are complete and unambiguous that they

can be, in fact, implemented properly within that COTS solution.

There is a whole other issue associated with COTS solutions, and

that is when you are buying that package, you are buying the embedded processes that go with that. And so, what you are talking

about is changing the way that your organization does business.

82

And so, that is a huge change management challenge that has to

be dealt with.

And that is not only just changing processes, but you are actually

going to have people change their jobs, change their roles and responsibilities. And so, not only do you have to identify those kind

of things, but you have to prepare the people for that kind of

change, too. And that is something that you have to start doing up

front.

So that is a little bit of my perspective on the comparison of the

two.

Mr. PLATTS. Mr. Williams.

Mr. WILLIAMS. And that is consistent with what we have observed also. I would agree fully.

Mr. PLATTS. Mr. Schied and Charbo, looking back and I realize

not in your exact position that you are in today, but your role in

the department and your knowledge of how the initial eMerge2

plan was laid out, is there lessons learned that you could share

with us today?

What maybe could have been done different that would get you

to where you are today with the shared services model approach

that you are taking versus having spent time and money on the

initial approach?

And then also could you expand on what type of interaction up

front went on between CFO’s office and CIO in deciding on kind

of the department-wide approach?

Mr. SCHIED. In terms of lessons learned, I guess there were certainly a mix of sort of the positive and the negative.

I think the positive was the fact that we did monitor the program

quite closely. There was earned value management, IV&V quality

control process in place that, again, gave us the warning flags literally within weeks that there was a divergence in where we were

going. And so, enabled us to be able to take action and to work to

try and address that before we got too far down the path.

In terms of sort of going back to when eMerge2 was first

launched, as you know, I was not in this position, and there was

quite a period where I wasn’t at Homeland Security as well, some

of the lessons learned I think on the management side were, as I

mentioned, first, just sort of the organizational capacity to be able

to pull off a big project like this so early in the formative stages

of the department.

The amount of staffing that we had within the CFO’s office. I

joined the CFO’s office literally just months after it first opened,

and there were 20 people or so in the CFO’s office at that time, in

total. Most of them, actually, on detail.

So I think there was some underestimation of the amount of

management attention that is needed to produce a successful outcome in a project like this. And that perhaps wasn’t taken—sort of

fully taken into account.

Also, as I mentioned, eMerge2 was perhaps initially a little too

separated from the overall realm of financial management within

DHS in sort of recognizing some of the issues that existed in DHS

financial management. You can’t broken processes, ineffective processes, poor internal controls, and just throw them onto a new financial system and expect success.

83

I think when DHS first stood up—and it really wasn’t until the

2004 audit that we had the first sort of full scope review of DHS

as a consolidated entity—I think by that time, it became obvious

where some of the real internal controls and material weakness

challenges were.

And so, I think that sort of wasn’t necessarily known at the outset of eMerge2, but was certainly part of what came into play as

we went through really the past year, year and a half in trying to

assess where we go first. There is a certain, again, prerequisite

level of, I think, baseline operations that one needs to master before one sort of goes off and does another realm of transformation.

It has been quite transformation enough just getting DHS pulled

together, and those challenges still remain.

In terms of—just before I throw it over to Scott—collaboration,

eMerge2 did go through the initial investment review process. It

was a far probably less mature process back a couple of years ago

when it first started than it exists today.

It was actually prior to sort of the second round of investment

review process the eMerge2 was going to go through basically to

get the green light to move forward when it became obvious that

the project wasn’t succeeding fast enough, and there was no way

we could take it through the investment review process further and

expect basically permission to continue on. There were simply too

many issues.

So I think having that process and that discipline in place, knowing that you have to go before your peers on the Investment Review Board and justify your program and explain what is going on

certainly makes managers accountable as to what they are presenting.

Mr. PLATTS. Thank you.

Mr. Charbo.

Mr. CHARBO. I would concur with what Eugene said. Coming into

the department at the time, they asked me to take a look at it from

a new perspective of the eMerge2 project before the cancellation,

and I think we commented on some of the same points already

briefed in the testimony.

But it seemed as if, you know, there was a complex migration

strategy of moving many variables at once, which may not deliver

some of the outcomes.

Our view from the IT side is not to overcomplicate things but assure, I think, the goal of a clean opinion in the accounting processes. When looking at the requirements, I think again it was overly complex, and I would concur with what GAO was stating about

requirements management in this case.

Coming from the private sector, I think we tend to make it a bit

more simple, a bit more specific in the result. And I think, in this

case, there were large wish lists and then not quite sure how to

get there in the project.

The procurement strategy as well may not have been optimal in

that case. I think that is not unique to DHS. I think procurement

is a challenge across the Government at the present time. So coming up with the right procurement strategy in this case is also a

requirement.

Mr. PLATTS. Thank you.

84

And I certainly don’t want to diminish the challenge of this effort

and the timing of it, having just consolidated 22 agencies, 170,000

employees, and all the different management systems, then trying

to move forward. But you know, so we want to acknowledge that

as one of the challenges in addition to the specific financial management aspect of the reform.

And I guess the good news is that this process, Mr. Schied, that

you reference that were in place to see where you were, that you

were at that roughly $8 million to $9 million and said we don’t

want to go further, as opposed to going through that $229 million

in total, as has happened at DOD already. And have the whole sum

spent and then realizing it doesn’t do what we need it to do. So

those checks and balances certainly were important to not getting

any further down the road.

I now recognize Chairman Rogers for the purpose of questions.

Mr. ROGERS. I thank the chairman.

Mr. Hite, you opened up making reference to the need for corporate-like institutional controls, and then you went on afterwards

to make the point, you recognized these are easier things to find

than to resolve.

But in your opinion, why are we having problems finding corporate-like institutional controls and systems being implemented in

DHS? Is it something inherent in the public system, in your view?

Why isn’t that happening?

Mr. HITE. With respect to the corporate controls, even in an organization that has been around for a while, like, you know, pick

your department du jour—Department of Defense—trying to get all

the different components to come together and want to pursue a

line of strategy that is in the best interests of the whole as opposed

to the best interests of their respective parts is a cultural change

that has to occur.

And this whole notion of taking an institutional approach to how

you manage IT forces that cultural change, and there is an inherent resistance to it. Now you take 22 agencies——

Mr. ROGERS. But isn’t there an inherent resistance, even in the

private sector, to change, period? Why is the private sector able to

bring that change about, and we can’t see it in these public entities?

Mr. HITE. I would submit that there are cases in the private sector where they aren’t successful at bringing about those kind of

changes, and in some cases, those institutions go out of business.

There is the survivability of those organizations from a financial

standpoint that is a great motivator. You know, fear and fear of

failure is a tremendous motivator.

In the Federal sector, these organizations have been around a

long time, who came together with all the right intentions from a

component standpoint, doing what they thought was the best interests of the component. To drop that because a department was

formed and say, ‘‘I’m willing to suboptimize what I am doing for

the betterment of the department as a whole,’’ would be a tough

pill to swallow.

And I think that for that kind of cultural change, a couple of

things have to be in place. And I think there has to be, No. 1, there

would have to be stable and very strong leadership from the top.

85

And there would have to be—part of that leadership would be a vision of how, collectively, the parts are going to work together for

the betterment of the whole.

And then there would have to be—from the human capital side,

there has to be performance and accountability built in to how individuals are challenged, expectations are given to them, and how

they are rewarded. And I think those would be the keys to the success and making that happen faster.

I would say there is evidence that it is beginning to occur at the

department.

Mr. ROGERS. I am anxious to see that. I mean, everything you

described I agree with.

But I make reference to the corporate-like reference that you

used in your statement because one of the things I see in the private sector in business is people don’t try to reinvent the wheel as

much as we do and as much as we see on the Federal level. You

find somebody that is doing something that works, and you replicate it.

And DHS, Customs and Border Protection got a clean financial

audit, and the financial management systems they have seem to be

working. Why aren’t we seeing the replication of that in the other

agencies? What are they doing right that the other agencies aren’t?

Do they have a better technology? Do they have better software

systems? Why did they get a clean audit? Why are they making it

work and the other agencies are not? And I throw that to anybody.

Eugene, you might want to take it first.

Mr. SCHIED. I would say in the case of Customs and Border Protection, knowing what I do of their implementation of SAP, they

did it, I think, in a very deliberative process, a very phased process.

The financial reporting, the general ledger was, I believe, the last

part of SAP that they stood up after they had done procurement

and asset management. So I think that—and that is exactly the

kind of what you described in terms of the reuse is what we are

now looking to do.

I want to—CBP did something. They seem to have gotten it

right. The auditors have come in and this past year were able to

give them an unqualified opinion on the balance sheet. We have

some other successes within DHS.

Over the past couple of years, the Coast Guard became the service provider to the Transportation Security Administration. They

have some audit issues. But from a where do we go forward, you

know, trying to decide whether you go for sort of the ultimate,

which is, as Scott described, a system that sort of meets all your

requirements, has everything that you could possibly want in it,

versus just getting something that works and meets the basic

needs.

Mr. ROGERS. It would seem logical to me that would be a success

of approximation of what Scott referenced.

Mr. SCHIED. Yes.

Mr. ROGERS. To find something that works and replicate it and

then work toward to the ideal.

Mr. SCHIED. Right.

Mr. ROGERS. Do you all sense that is what is happening? Do you

all sense that is the desire of the department?

86

Mr. SCHIED. Yes, for financial systems, and I think it is probably

true with other systems as well. That is certainly where we are at.

Mr. ROGERS. Great.

I want to shift just a minute to Mr. Williams and talk about

human capital. We are going to be talking about that issue more

in our subcommittee later. But you talked about the human capital

asset problems you found.

Well, tell me more about that. Tell me what shortcomings you

found in the area of human capital that stood out to you.

Mr. WILLIAMS. The bottom line in the area of human capital, we

looked at it from the perspective of what DHS should be considering as they go forward in trying to implement new systems and,

as we like to say in the financial management arena, achieve overall accountability of its operations.

What we noted is that during the 1990’s, there was a downsizing,

and it was not just in the IT community, but across Government.

You had some reductions, downsizing in the area of human capital.

What the agency needs to do is to look at basically what are our

needs in the area of human capital, and what do we currently

have? And basically, we call that a gap analysis.

What mix do we need? What type of experts do we need in these

various areas in order to get the systems that we need and to get

those systems operational? And what mix of people do we need to

address what I consider another major component of trying to address this overall problem of accountability, and that is to put the

policies and the procedures in place in order to produce information

that is timely, reliable, and available for day-to-day decisionmaking.

Mr. ROGERS. Let me understand now. What you are making reference to was you saw system shortcomings, not shortcomings in

human capital assets?

Mr. WILLIAMS. Well, saying that the agency needs to look at

what it currently has in place and come up with a strategy as far

as what is needed and make a determination what is the gap between what I have and what I need in order to get to that goal that

I am trying to achieve down the road.

Mr. ROGERS. I understand. The reason why I raised that issue

is, it seems to me, that we have a real problem. And Ranking Member Meek brought it out in his opening statement. We have a real

turnover problem in the upper levels of management throughout

DHS. And it seems to me that is part of the reason why we are

finding these shortcomings in not just in systems management, but

in other areas as well.

Mr. WILLIAMS. Yes.

Mr. ROGERS. I didn’t know if you had noted that in your review

or not?

Mr. WILLIAMS. One of the things that we point out in the review

or in the analysis of documents that we put together is that, first

of all, you have to have the commitment from top management.

Management has to be committed to the effort of what is going

on in the area of trying to achieve accountability, trying to get systems in place, trying to improve the internal control environment,

efforts to eliminate the material weaknesses that the outside auditors have reported on, efforts to get the agency in compliance with

87

key laws and regulations that the auditors have identified, as well

as reportable conditions that the auditors have identified.

You need that commitment from the top, not only in words, but

you need it in action. It needs to be a long-term commitment because a lot of these problems that we are talking about today and

efforts that need to be underway in order to address these issues

and to achieve ultimate accountability, it is not going to happen

overnight. So you need that long-term commitment.

Mr. ROGERS. You are also going to have to have stability at the

top, and we are not seeing that right now.

Mr. WILLIAMS. That is correct.

Mr. ROGERS. I see my time is about up. So I will yield. I am looking forward to the next round of questions, though.

Thank you, Mr. Chairman.

Mr. PLATTS. Thank you, Chairman Rogers.

I would like to recognize we have been joined by the gentlelady

from Texas, Ms. Jackson Lee. Thank you for being part of the hearing, and I now recognize Ranking Member Meek and then Ms.

Jackson Lee.

Mr. MEEK. Thank you, Mr. Chairman.

I guess this is for our Chief Financial Officer. I know that you

are acting at this time, Mr. Schied. I am assuming you are acting,

and someone is holding confirmation at this point. Am I correct?

Mr. SCHIED. Yes.

Mr. MEEK. OK. I appreciate your service. You mentioned something about 2 years at the department?

Mr. SCHIED. I was actually at the department for a year when

it first stood up, as the budget officer. I left for a year and then

chose to come back.

Mr. MEEK. Good for you. But good for, hopefully, a little consistency there. We keep sending that message, but it is something that

we have to deal with in our subcommittee with the department to

try to make sure that folks are able to have an opportunity to stay

at the department.

Mr. Williams, you spoke in a very eloquent way that it has to

be a commitment from the top. But as we have the revolving doors,

and I just want to share with the committee this article that was

in the USA Today of the ‘‘Brain Drain Hits Homeland Security.’’

And it talks about not just analysts leaving, but individuals that

are sitting at this table making decisions and making statements

before Congress.

I want to just—I guess, Mr. Schied, if I could—ask you a question. You mentioned something about the eMerge2. You say you

pulled the plug on it. You used that term ‘‘pulled the plug’’ before

a lot of money was spent.

How much money was spent? Because I am a little confused. I

have in your written testimony here, it says that the total expenditure on eMerge2 contract with BearingPoint under the implementation of BPA—I guess that is the acronym for it—was $8.9 million.

And then in a letter that was sent yesterday afternoon in response to Chairman Rogers and my letter that was dated on February 8th, on the second page, it says that the first phase of the

Program 1, $9.4 million was spent, and then after that, the $8.9

88

million was spent on 2 for a total expenditure of $18.3 million. Is

that correct, sir?

Mr. SCHIED. That is correct. There were two phases of the

project. The first phase was largely a requirements phase, and that

was the $9.4 million that went to a couple of different contractors,

and then $8.9 million was under the blanket purchase agreement.

Mr. MEEK. OK. Since your letter is not in the record, it was sent

yesterday. I got it yesterday, and I believe the chairman got it yesterday. It was not in the record, I just wanted to make sure that

was a part of our record here.

Mr. PLATTS. Without objection, it is included.

Mr. MEEK. Thank you. Thank you, sir.

Also, I guess one of the reasons why I wanted to get into that

area because of the attrition rate at the department. We are going

to have a new-found commitment to making sure that this works.

I know that, Mr. Charbo, you have this council that you sit down

with, with your other Chief Information Officers or information office at the Department of Homeland Security. I am going to give

you some level of comfort, if you ask for it or not.

In our subcommittee markup that we just had under the DHS

Management Operations Improvement Act, we gave you line authority. Because I believe reading this report that I am looking at

here, that is what needs to happen. You have to have the authority

to be able to carry out the mission, and I am concerned about that.

And Mr. Charbo, if I can ask you a question, under your existing—because we have legislation moving through the process that

will—it is not about you. It is about your position. Giving you that

line authority, will it help you implement the recommendations

that the GAO has spent a lot of time on in pointing out?

Mr. CHARBO. It will. I mean, it will take some of the arguments

away.

Mr. MEEK. I think what is important now is for, hopefully, the

department above your, I guess, pay grade to embrace that philosophy that you just answered. I am glad you answered truthfully because if someone was to ask me do I want line authority, I would

say yes because I want to lead, and I don’t want to do it by committee.

And I think it is important for us to be able to carry it out if we

are going to implement any of these. I mean, what is happening

right now and I think the reason why we have the attrition we

have, Mr. Chairman, is the fact that folks are doing things by committee. And it is just not going to evolve.

Now there was another point in the report that I may want to

come back to, since we only have a few Members here, that would

allow us to deal with the question, it was in the report—and I

guess it is for the GAO, whichever one of you wants to answer it—

on page 11 that talks about fixing requirements dealing with the

system costs, anywhere from 10 to 100 times more cost. I’m sorry.

Ten to 100 times the cost of fixing it when requirements are defined.

Do you know what I am referring to, sir?

Mr. WILLIAMS. Yes.

Mr. MEEK. I want you to kind of elaborate on that because I do

have a question after that, if you could?

89

Mr. WILLIAMS. OK. We will get our chief technologist to talk to

that particular point.

Mr. PLATTS. Do you want to state for the record—and actually,

Mr. Rhodes, could we have you stand and take the oath?

[Witness sworn.]

Mr. PLATTS. OK. The clerk will reflect an affirmative answer.

Thank you.

Please proceed.

Mr. RHODES. Mr. Meek, the variation is you have to think about

software development sort of like you are firing a missile, and you

are not directly aiming at your target, but you are going to do these

course corrections along the way. Well, if you are trying to hit your

target and you don’t do any adjustments until later on, then you

have to burn up a tremendous amount of fuel to hit your target.

Well, here is the same situation. If you don’t get clear definition

of your requirements up front and certainly if you wait further on

to where you are actually in final system integration or certainly

if you are in deployment or in operations, then it takes a tremendous amount of money per line of code to fix it.

And the greater concern associated with that is the problems

that you introduce trying to fix things that arise. You fix one problem and make five more. So it is not just that one problem now

costs you a lot more money. It is that problem, plus the other five

you made now cost you a lot of money. You have to fix it up front

rather than on the back end.

Mr. MEEK. OK. Well, that comes down to the implementing of

the program, especially under our new way of doing business, I

would assume, at the department.

Mr. RHODES. Absolutely.

Mr. MEEK. So that is so very, very important. I see that my time

has expired.

Hopefully, Mr. Chairman, we may get another round of questioning, and I can get a little further clarification. But thank you for

that explanation. I yield back.

Mr. PLATTS. Thank you, Mr. Meek. And we do plan to come back

around.

And before we move on to Ms. Jackson Lee, the previous witness,

Mr. Keith Rhodes’s title, Chief Technologist at the Government Accountability Office. So that we have that in the record.

Thank you. Ms. Jackson Lee.

Ms. JACKSON LEE. Thank you very much, Mr. Chairman.

That is about the way I feel. Let me go back to just an old contract that may be just that because it is in the history. And I just

wanted to find out when the blanket contract was given to

BearingPoint and SAIC, two of them, it looks like one was given

in 2003, and then a subsequent one was given, and it was subsequently put on hold. After less than a year, however, the CFO put

eMerge2 on hold.

Did any of these contracts have performance provisions to them?

Who can answer that? Measuring sticks of their performance?

What is the terminology of a blanket contract?

Mr. Schied. That is a blanket purchase agreement.

Ms. JACKSON LEE. Right.

90

Mr. Schied. That meant that there was going to be an overall $220 million project or $229 million project divided up into specific

task orders. And in the case of the blanket purchase agreement for

eMerge2, we had a first task order. It was a firm fixed-price task

order for $20 million. There were specific——

Ms. JACKSON LEE. And so, it was task specific? You do this task for $20 million?

Mr. Schied. It was actually a series of tasks, a series of

deliverables. And there was a schedule associated with that, and

it was that each of the tasks in the various schedule that

BearingPoint was to follow that allowed us to track their progress

and to know in a fairly short amount of time that there was a divergence between their performance and what the contract called

for.

Ms. JACKSON LEE. And did you all track the performance?

Mr. SCHIED. Yes, ma’am.

Ms. JACKSON LEE. And what did you find? So, in essence, you

had performance standards? I mean, what did you have to assess

whether the work was being done and done timely?

Mr. SCHIED. There was a project plan that identified everything

that was supposed to be done under the contract. And then as

products were delivered, they went through an acceptance process

by the Government to determine whether or not the products that

were being submitted met what was called for under the contract.

Ms. JACKSON LEE. I guess we don’t have an IG here. Is there

someone that believes that was this an effective approach, Mr.

Schied? Was this an effective approach?

Mr. SCHIED. Oh, I would say that it was in that we, again, quickly found out that there were problems, that the products that were

being delivered weren’t on time. They weren’t acceptable. There is

actually a chart that looks like this that we used to track the

progress, and you will see a fair amount of red there. That indicated that there wasn’t success that we had expected.

So that, again, we, within a matter of weeks, realized it was not

going right, called essentially at first a timeout. Ultimately decided

that we were going to abandon that task order altogether. And

rather than pay the $20 million, which is probably what costs were

incurred, we wound up paying under this particular task order $6

million, which was the value of the products that we had ultimately accepted.

Ms. JACKSON LEE. Was this a settlement without court? Was this

an internal, inner response that you got working with the company,

saying that they had not performed?

Mr. SCHIED. Yes. Correct.

Ms. JACKSON LEE. And so, the only amount that you paid was

$6 million?

Mr. SCHIED. Well, there were a couple of different contracts. And

under this blanket purchase agreement, there were two different

task orders.

Ms. JACKSON LEE. So you total up to what?

Mr. SCHIED. Again, under this particular task order or under the blanket purchase agreement, this one was $8.9 million.

Ms. JACKSON LEE. OK. So let me just in the course of that backdrop, are you now prepared to describe how eMerge2 the contract

91

will be designed and awarded to ensure the best value for the taxpayer?

For example, will the contract be open to full and fair competition? And how do you plan to structure the contract to ensure that

the contractor delivers on time at or below cost? And are you somewhere in this process where the Homeland Security and the merger

of all these different accounts can finally get a hold of the enormous stream of money that seems to be pouring out with no supervision, no checks and balances?

Mr. SCHIED. At this point, we are going through a replanning

phase. I believe at this point, we have abandoned any notion that

we are going to go back and rebid that contract, that blanket purchase agreement that we had initially entered into.

We are taking a totally different path. We are looking at reusing

investments that have already been made, either through the OMB

lines of business or leveraging existing investments that have been

successfully implemented within DHS.

I don’t see that there is going to be another contract like there

was with BearingPoint. We have decided to go a different route.

We believe it will be less risk and less costly.

Ms. JACKSON LEE. But I am sorry. Can I just hear the different

route that you are going?

Mr. SCHIED. Oh, certainly. We are going through each—there is

a DHS—when eMerge2 was initiated, at that time, looking across

the systems that were in place within DHS, there were notable

weaknesses in all of the systems. None of them completely met, for

example, the JFMIP requirements.

Since DHS came together in 2003 and since eMerge2 was initiated in 2003, there have been a number of changes. OMB has endorsed a lines of business approach. Customs and Border Protection has implemented successfully a core financial system. The

Coast Guard has upgraded their core system and taken on the role

of a service provider. The Secret Service has implemented a new

system.

So the environment has changed quite a bit since we initiated

eMerge2. So it was a combination of factors of not being successful

with where we were going with eMerge2 and seeing that the environment changed and there were opportunities that we could leverage that is taking us a different direction.

Ms. JACKSON LEE. Mr. Chairman, I thank you for the indulgence.

I was going to ask for an additional 1 minute. I was going to ask

unanimous consent for an additional 1 minute.

I would just say to you that I know that the hearing has been

going on for a while. I was in a Science Committee hearing. So I

am directing this to the attention of the chairman.

The gentlemen here are certainly fine public servants, but I am

just shocked at the repetitiveness of what keeps coming up about

expenditures. I know this is on one particular area, and I hear the

acting director, and I appreciate his commentary. But $20 million

was already spent, and they had to just let that go.

In New Orleans, that is a separate story, but I think this is an

important, enormously important challenge that we have, and I

don’t know how we are going to complete it. But certainly, there

92

needs to be a great deal more work because money just seems to

be spilling out with no accountability.

And I don’t know if bells are ringing, but let me just pose a question that maybe we can get—there are reports here, I understand

that. But maybe we can get, at least pointedly on this issue, is just

what money we lost? What money has been wasted in sort of a

lump sum?

And I yield back.

Mr. PLATTS. Thank you, Ms. Jackson Lee. Appreciate the challenge here with schedules of us having to be at three or four different spots at once throughout the day. We did have earlier testimony about the sums, the $8.9 million,

and in the written testimony that goes into some detail of how it

was spent. And certainly if there is a specific followup question you

would like to submit, we will be keeping the record open for 2

weeks as well, if there is something more specific you would like

them to provide.

I want to pick up kind of where we were there with Ms. Jackson

Lee on the cost and certainly in the intent of this hearing is to

learn of what has transpired and, as asked earlier, what lessons

have been learned and, hopefully, what knowledge has been

gained, even though you haven’t gone forward with the department-wide eMerge2 program. What did you learn from the dollars

spent that you can now put to good use with the new approach?

And so, that we are being responsible with taxpayer funds. And

especially for this department, it is so critical because any dollar

that we do lose is a dollar that is not available to actually be out

there defending the country and our citizens. So your work is critically important to the lives of our citizens and to their security.

With the new approach, originally you envisioned the depart- ment-wide approach, $229 million. And now with the new approach, is there a dollar figure? I know in the testimony we talk

about that you have $48.4 million available in the current fiscal

year. You have asked for an additional $18 million in the 2007

President’s budget. So right there, we have about $76.5 million.

Do you have a figure, taking this new shared services approach?

What do you envision total cost being as compared to that $229

million?

Mr. SCHIED. I think it would be a bit preliminary for me to really

give you very finite estimate. Let me say in terms of the work that

was done to date on eMerge2, there are a number of products that

were produced under the original—under the money we basically

already spent that will still be, I think, quite helpful for us going

forward.

For example, all of the requirements that were identified. Rather

than looking to find a COTS system and to build that out to meet

all of the requirements, it serves as a useful reference model when

assessing other systems that are in place to determine what gaps

there were.

That is, what did we want? What can we get out of one of these

existing systems? Where are the gaps, and what do we do about

closing the gaps? Either decide that it is not that important or decide that we are going to conform, or obviously, we will need to conform to what is in place, but is there something about what was

93

in the original requirements versus what we would be moving to

that, going forward, say, if we were to reuse the CBP system or the

Coast Guard system that we would want to keep an eye on to possibly upgrade at some point in the future?

A lot of the costs are still going to be the same. That is, there

was under the original eMerge2 project, there was going to be a

data warehouse to give us greater visibility, to give management

greater insight into information. And that will still be a part of the

project and probably even more importantly so.

The cost of cleaning up data and migrating components from the

system we are on now to whatever the new target system will be,

those costs will still be similar. I think in terms of total project

range, quoted probably in the order of $150 million to maybe $200

million.

And so, I think it is probably less expensive than where we were

going before. It will also be stretched out, I think, over a greater

period of time versus where we were going before.

Mr. PLATTS. On that specific point, one, my hope is I understand

you can’t give an exact figure or exact numbers, but in that saying

it is a little preliminary, it kind of comes back to where we started

is the hope that there is a pretty definitive plan of where you are

going that should give you some guidance of what your costs are

going to be as opposed to saying, well, we know we are going to

spend $66.5 million, but not really know what that end cost is

going to be.

Well, that gets into the issue that we need to know that now, not a year from now, well, it is actually going to be $300 million, not

$150 million. So that does concern me that there has not been a

better fleshing out of what that is going to be in the end.

Mr. SCHIED. Well, we are still deciding just sort of who will be

sort of clustering around. I mean, I want to reuse systems, but I

don’t know at this point whether I am sending everybody to one

system or I am sending people to perhaps two different systems,

if they will be inside the department or outside.

That is part of the planning phase that we are going through

now and that I foresee somewhat will depend on the timing of the

confirmation of the next CFO, for him to be able to put his stamp

on it. But sometime in the May/June timeframe is when I want to

take it back through the investment review process.

Scott right now controls all of my money, and he is pretty hard

about making sure that before I spend it, I know what I am going

to do with it.

Mr. PLATTS. Well, Scott, that is a good approach. Stay focused on

that approach.

On the timeframe, May to June, as to when you kind of think

you will have that plan and come back to that review, you talked

about it may be over a longer period of time because originally, in

the original plan, it was by this year, 2006——

Mr. SCHIED. Right. We would be up on that.

Mr. PLATTS [continuing]. We would have that department-wide

plan. So now we are kind of starting over. Do you have a timeframe that you believe you are going to be able to pursue?

Mr. SCHIED. Well, I mean, it is complicated by, again, our recognition of simply the challenges we face in terms of improving fiVerDate 11-MAY-2000 13:55 Oct 25, 2006 Jkt 000000 PO 00000 Frm 00099 Fmt 6633 Sfmt 6633 D:\DOCS\29709.TXT HGOVREF1 PsN: HGOVREF1
94

nancial management in DHS. Most of the—many of sort of the first

wave of components that were to migrate to a new system are currently being serviced by Immigration and Customs Enforcement.

They contribute in a fairly significant way to the material weaknesses that we have in the department.

Mr. PLATTS. Right.

Mr. SCHIED. I walk the line between how fast I can say get their

customers off their system and being serviced by somebody else

and how much I need Immigration and Customs Enforcement to be

able to fix the problems they have, which go not only to servicing,

say, me because I am a customer of them, but also what supports

their mission.

I am at the point now where I have to focus probably for the next

18 months on Immigration and Customs Enforcement and the

Coast Guard, improving their material weaknesses and improving

controls before we are really ready about moving people onto different systems.

Not to say that a lot of the work can’t happen—there is work

that can happen concurrently. We are not going to be sitting

around for 18 months, figuring out what we are going to do with

eMerge2. But it is not going to be like a September 2006 kind of

decision at this point.

Mr. PLATTS. And you touch on exactly where I was going to go

next. I am going to wait until we come back around to the next

round. But on those centers and the problems that some, ICE and

the Coast Guard already have and the ability to actually migrate

within the department given some of the challenges that you have.

But I will come back to that on the next round.

I recognize Chairman Rogers.

Mr. ROGERS. I want to stick with Mr. Schied and go back to your

reference to leveraging existing programs or investments. Tell me

more about what you mean by that.

Mr. SCHIED. Well, what happened over the past couple of years

while eMerge2 was not making success, there were a number of

successes going on within DHS. The Coast Guard became a service

provider to TSA. That is, TSA was on Transportation’s system.

They weren’t happy with that. They were going to be a part of the

eMerge2 solution, but they wanted to move fairly quickly, quicker

than we were going to schedule them for eMerge2.

And so, they approached the department, along with the Coast

Guard, asking to be able to move from Transportation onto the

Coast Guard system. Both of them had been in Transportation together.

But CFO Maner basically green-lighted that, allowed it to happen. And in 2005, TSA got not only the systems, but the financial

services through the Coast Guard. And it was seeing that worked,

and it seemed to work reasonably well, and seeing where CBP had

upgraded their system or Secret Service had put in a system, we

realized, look, other people are having some successes at this. We

are not being that successful.

OMB at the same time has, over the past year, promoted their

lines of business. It really, I think, fostered a lot of the same kind

of thinking, led us to the conclusion there are probably things here

we can leverage.

95

I mean, I now have half of the department, depending on how

you want to measure it, on the Coast Guard, between Coast Guard

and TSA being about half of the employees in the Department of

Homeland Security.

Mr. ROGERS. So, in a nutshell, you are talking about replicating

what they are doing in other agencies?

Mr. SCHIED. That same idea, yes.

Mr. ROGERS. OK. Mr. Charbo, what do we get for $18 million?

Mr. CHARBO. I think—as Eugene pointed out, I think the one deliverable they have is the requirements baseline. That is reusable.

That is not a short-term tasking. That is not an easy tasking. As

has been pointed out, we have had 22 different systems and components that we were trying to bring in, all with the different wish

lists of wanting to get to a different objective.

So I believe what they got is that understanding of where those

requirements are and some of the documentation it would take to

move forward.

Mr. ROGERS. I want to go back and talk a little bit more about

human capital. You made reference in your comments earlier that

you were one of the people who were with the CFO’s office when

the department was originally stood up. Is that not correct?

Mr. SCHIED. I was.

Mr. ROGERS. You were?

Mr. SCHIED. Yes.

Mr. ROGERS. I am sorry. I got the wrong note on the wrong pad.

What percentage of those people are still around?

Mr. SCHIED. Percentage wise, very few. I mean, I could probably—again, there were maybe, a rough number, 20, when I joined,

and it was shortly after DHS was stood up, actually in May 2003.

I am guessing there is probably maybe one or two that are actually

still within the CFO’s office.

Mr. ROGERS. In your opinion, is that a significant factor in the

problems that we are talking about here today in these management systems, or is that really an aside?

Mr. SCHIED. I think specific to the CFO’s office, it is somewhat

an aside. I think the overall issue, sort of the bigger issue is just

the number of people versus the turnover.

There certainly has been turnover, and particularly with the office that is managing this particular project, there has been quite

a bit of turnover, particularly since we decided to change direction.

It is not really what the team envisioned.

Mr. ROGERS. The turnover throughout these departments, whether it is in the CFO’s office or information systems, you don’t think

that personnel turnover is really the big reason why we are having

problems?

Mr. SCHIED. Oh, I think it does—I think it adds something to it.

I would say particularly where we are at today versus where we

started out, I mean, today, the CFO’s office is somewhere between

80 and 90 staffed at versus the 20. I mean, when things started

out, it was just very, very scantily staffed. Certainly some turnover

does play its role, too, though.

Mr. ROGERS. I do think it was Mr. Charbo that made the point

that you saw real problems in the procurement process. Was that

you or Mr. Schied?

96

Mr. CHARBO. I did make the statement that——

Mr. ROGERS. Tell me about the shortcomings that you see in the

procurement process.

Mr. CHARBO. Well, this is in general. It is awfully difficult to put

together procurements in Government that are sort of focused on

performance based that meet the general outcomes. I mean, often

we have multiple procurements that overlap that you need to align

those, integrate integrators toward a common goal.

The timelines certainly are a challenge in a lot of the procurements. I mean, that is my perspective also coming in from outside

of Government. I think that is a difference. You were asking differences earlier. I think that is a clear difference, and being able

to make decisions and procure those and start the projects on a

faster note.

Finding the right vehicles, going through the processes, answering the questions that come in. That takes a long time, and that

puts a burden on important key projects.

Mr. ROGERS. All right. And the last thing I want to ask about

is this ‘‘F’’ that for the 3rd year the department has gotten from

the Government Reform Committee’s annual assessment, and I

throw this out to anybody. Why is this continuing to happen?

Mr. CHARBO. Let me—I will comment on that. I think the first

thing is, is coming into DHS, again, I changed the project around.

You know, where we were is not where we wanted to be in that

certification progress. I believe we had 20 percent or less of our

systems certified and accredited.

We made it a key objective. It is one of my major initiatives. We

had the Secretary make it one of his major initiatives. He wanted

to make it that. We had him kick the project off at an IT security

conference last October.

And since that point, we are at 62 percent of our systems. Our

goal at this point is we wanted to be at least 50 percent complete.

So we are on target of meeting our 100 percent by the end of the

year. That is our goal. That is our objective.

We have made our executives accountable for that goal. They

don’t have any other performance mark. We made it real easy for

them. Your goal is 100 percent certification and accreditation.

So that is where we are moving toward. I think we are on the

right plan, and we are looking to change that ‘‘F’’ next year.

Mr. ROGERS. Thanks a lot.

Mr. PLATTS. Thank you, Chairman Rogers.

Ranking Member Meek.

Mr. MEEK. Thank you, Mr. Chairman.

Mr. Charbo, I want to ask you a quick question. I know that your

predecessor, Steve Cooper, planned to develop the department-wide

IT strategy plan. That plan was supposed to be released in the end

of 2004. The plan still has not been released. Two years have

passed, and the department has spent millions, if not billions, on

technology without having a strategic plan.

Do you believe that the department needs to have a strategic

plan? And if I missed something and they do have a strategic plan,

please share it with me.

Mr. CHARBO. We will share it with you. There is a department

strategic plan, and our IT strategic plan does align with that deVerDate 11-MAY-2000 13:55 Oct 25, 2006 Jkt 000000 PO 00000 Frm 00102 Fmt 6633 Sfmt 6633 D:\DOCS\29709.TXT HGOVREF1 PsN: HGOVREF1
97

partment-wide plan. We are also in the process of creating a new

strategic plan for IT. But we have a document that is our IT strategic plan, and we could share that with you.

Mr. MEEK. When was that document developed?

Mr. CHARBO. I believe it pre-dates myself as well. I am not sure

of the exact publish date.

Mr. MEEK. OK. We would like to get a copy of it——

Mr. CHARBO. Sure.

Mr. MEEK [continuing]. So we will know exactly what is happening.

Also, I guess this is for you, Mr. Hite. I understand that there

was some mention of the Coast Guard and the whole integration,

but I understand that the Coast Guard is servicing TSA for its financial management activities. Please explain how that works specifically as is each component running the same system, or has the

same system been customized for each?

And please explain the difference between consolidating them on

the same system and allowing them to have similar core systems

with customization? What impacts does it have on integration efforts?

I am asking that because this is all going as we start to step off

again to hopefully not step back in the same hole we just got out

of. You can kind of elaborate on that a little bit.

Mr. HITE. I will actually ask my colleague, who is the financial

management expert, to respond.

Mr. MEEK. Whichever person that can answer that question better. We are all for the best information.

Mr. WILLIAMS. OK. Basically, when you are talking about a service provider, it is similar to the National Finance Center that provides a payroll service for various agencies in the Federal Government.

You have your operation in which you are processing transactions, be it accounting transactions or what have you, and that

information is processed. You have policies and procedures within

your organization as to how you are going to operate or your concept of operations. And information through various means is provided to the service provider. It could be manually, electronically,

or what have you.

That service provider would then actually process that financial

data, that information, and produce reports and provide that information for the entity or the organization that it is providing the

service for.

Mr. MEEK. So I don’t think they have the same system. That is

my question. I mean, they don’t have an individual system, a

customization. Is that needed?

Mr. SCHIED. The Coast Guard and TSA do use two different instances of the Oracle system that the Coast Guard has in operation. That was part of the agreement when TSA came over. There

were a number of improvements that they wanted to see made.

Again, the Coast Guard does have a number of cited weaknesses.

The TSA in assessing the Coast Guard system wanted some improvements. And if the Coast Guard—I think the Coast Guard,

even if they didn’t become a further service provider, very much

wants to be able to standardize on the TSA instance of the system

98

because I think they see it as an improvement over what they had,

and that will just take some time and money for them to do that.

I think if anyone is a service provider, they generally want to

have a single instance of the system, the single version that all of

their customers are serviced on rather than trying to operate multiple and somewhat different versions of the system.

Mr. MEEK. Yes. And you can see where the concern comes in.

Even when you look at personnel issues or you look at mission,

there are a lot of, you know, ‘‘This is my little spot here in Department of Homeland Security, and don’t you dare cross that line.’’

I mean it’s almost like Mr. Charbo here, who has a great job.

They have this council, and I don’t think that there is a person at

the head of the table who says, ‘‘Well, we talked about this at the

last council meeting. Why don’t you have it?’’ And no one feels a

level of urgency to carry out any of these reports that we have.

Mr. Chairman, I keep driving to that because we have a situation where taxpayers’ money was wasted and national security was

jeopardized. And you know, this is not about the crop report, you

know, as it relates to corn or whatever the case may be.

I don’t want the National Corn Growers Association to get upset

with me, but the real issue is this, is that this is national security.

And you know, I feel and Chairman Rogers, we tried to address

many of the management issues in our mark. But I think that it

is important that we look at when you say ‘‘best practices’’ or

things that we have learned, I think that we have something to

learn as policymakers.

We believe that we have a department that we can say, ‘‘Well,

this is the way it should be done because we are the representative

of the American people,’’ and you say, ‘‘OK, fine.’’ But you go back

to the department, and then you have these little kingdoms that

are out there, and they all have gates and drawbridges and all of

those different things.

And unless we give you the authority, which we have, in your

case, to be able to carry out the mission and look at a GAO report

and say, ‘‘OK, fine. This is what we are going to use as our beacon

of light toward improvement, then let us do it.’’

I don’t know. Maybe I should buy lunch for you every Friday. I

want you to stay in place so that we can get this in line. You know,

I am joking. I am trying to be a little funny.

But at the same time, we have to have a mission statement that

will carry on even when the next person comes into the office, saying, ‘‘Well, this is what we already have going.’’ Because someone

could look at it and say—it is like a letter almost. If I write a letter

in my office, I hand it to my senior advisor. She looks at it. She

changes it. It goes to the chief of staff. He looks at it. He changes

it.

And so, everyone starts changing this letter, and sooner or later,

it is going to lose the original intent that I had tried to, I guess,

share with the person I was writing the letter with.

But Mr. Chairman, I believe we are going to have to address it

because I think we have people here, people of good will who I

know everyone at that table is for national security and for accountability and for saving the taxpayers money. But I think that

99

we are going to have to further dig into how can we hopefully continue to fine-tune and sharpen?

I think the department is a pencil and is dull, and we just need

to sharpen it because when it is dull, it is kind of hard to write

with. I think that is what you all are going through on a daily

basis. We just need to get down to the bare facts of what is needed.

That is difficult, and we understand that, but we don’t want to

have to legislate in haste.

I think the department was, even though there was some

thought went into it, it was a kind of ‘‘We need to do this now. So

let us do it.’’ And now it has happened. Folks are getting more cemented in and in quick-drying cement, saying that this is the way

the cookie is going to crumble. It doesn’t work, especially when we

are trying to make this happen.

Mr. Chairman, that would be the conclusion. I won’t have any

closing statements. I wouldn’t want to ask for another round. But

I just want to thank you and Chairman Rogers for putting this

hearing together. I think it was very insightful not only for me, but

also for the staff that is listening.

Some of the questions were answered. We were able to get some

good things into the record.

Mr. PLATTS. Thank you, Ranking Member Meek.

And your point about getting to the bare facts is very important.

And one of the things through the legislation that the House and

Senate adopted with the department is the audit internal control

is to try to get to that bedrock of the information capturing and

then build from there forward. That, actually, I plan to get into a

little bit in questions in the next round for myself.

And your counsel that we really take what we learned and put

it to action here is something that if I have the number right, I

think GAO has done about 40 different reports in this general area,

and the importance of the department, both our CFO and CIO to

really lean on GAO for the knowledge they have as you move forward and to stay on the right track.

The wealth of knowledge is there to be embraced and acted upon

and to see GAO as a friendly partner, you know, to work hand in

hand with you as you go forward.

Ms. Jackson Lee.

Ms. JACKSON LEE. Thank you, Mr. Chairman.

Following the line of questioning that has persisted all afternoon,

I want to try to get to another component. Mr. Charbo, if you

would? We know when we are talking about best practices and information technology, it calls for another component, which is the

human capital.

And I think some of my colleagues have mentioned some of our

concern and maybe even disappointment at the seeming revolving

door. Unfortunately, it is a very large department, and we are recognizing that more and more.

When it first started, the Homeland Security Department was

180,000 that we thought we were putting together. In the course

of that, of course, in the merger, we are sure you lose people. But

it seems that we have had a tough time.

I want to know does the department now have sufficient information technology, human capital, the right skills to effectively carry

100

out its mission now and in the future? If you answer yes, how do

you know that DHS and the components have this capability?

What is the analysis that has been performed to determine the capability? And if you don’t feel we are there, can you explain the

reasons why not and whether there is a plan to do so?

And I also want Mr. Hite to comment on the human capital question. Mr. Schied, I would be interested in your overall view as to

this fact that DHS did not receive a clean financial opinion in 2005.

And we may have gone again over this, but how are we prospectively going to achieve that clean opinion as we look toward the future? And how do we give comfort to Americans that we are actually utilizing their tax dollars efficiently?

Mr. Charbo.

Mr. CHARBO. I think one of the—addressing the IT human capital. We have a heavy contractor utilization in the department. So

a lot of the gaps that we have done some analysis for, and we have

prepared a plan. Even our conference report and the appropriation

required us to produce a document this year that identified it, and

that goes hand in hand with what the OMB requirement is, is to

do the IT human capital gap analysis as well.

So we have done that. We are identifying solutions or ways that

we can mitigate those plans. Primarily, that is for a lot of the higher grade project/program management level positions. Some of the

unique security or network administration positions that we have.

Those are some of the areas that have been identified as gaps. But

the tendency is to fill those with contract support in order to continue the systems operating and the mission moving forward.

So we have done the initial analysis, and we are beginning to fill

the gaps and publish that report.

Ms. JACKSON LEE. But are you telling me that you are using

mostly contractors as part of the human capital?

Mr. CHARBO. At the department. At the department, a lot of the

IT positions, which typically aren’t identified as inherently Government, are filled with contract support.

Now you need Government employees to supervise those contract

employees. So, as we do the gap analysis for that, we have identified that solid program managers, solid IT project managers are

areas that we need to fill in more robust.

We look for lots of authorities in that area. Certain components

have some direct-hire authorities. Others do not. So we are trying

to sort of level that playing field. That is one of the gaps identified.

That is one of the things that we would ask for some support in

getting.

Ms. JACKSON LEE. You don’t think that undermines institutional

knowledge?

Mr. CHARBO. Using contractors?

Ms. JACKSON LEE. Yes.

Mr. CHARBO. No. I think that is the gap analysis that we have

identified at the upper levels, the managing positions for IT, that

is where we look for that institutional knowledge. There are a lot

of IT positions that are administration or pulling cable, development. I mean, most of that is done on a contract basis.

Ms. JACKSON LEE. Thank you.

Mr. Hite.

101

Mr. HITE. Certainly. I will speak to strategic management of IT

human capital at both the program level, the component level, and

the department level because you want to do it at all levels. And

basically, what we are talking about is understanding what is the

suite of functions that we need to perform to execute this program

or to execute a component’s IT mission?

What are the core competencies associated with those? Who do

we have onboard now? How do they match up against those core

competencies? Do we have an inventory of those skill sets? What

are we going to need strategically going forward on a continuous

basis? Where is that gap? And then what are our strategies for filling that gap?

And contracting for services is part of strategy, but also certainly

through hiring and retention and training are other strategies as

well. Our work has shown at the program level, some of these large

programs that we have looked at—for example, the ACE program—

that kind of strategic approach to human capital management isn’t

going on. They recognize it. They intend—they have represented to

us that they are going to work on that.

At the component level, CBP, for example, which is the component that ACE resides within, that hasn’t happened. They recognize it, and they have represented that they are going to work on

that.

At the department level, I look forward to seeing the IT human

capital strategic plan that the—Mr. Charbo referenced. We are, by

law, required to look at that once it is produced. I have not seen

one to date. I am not aware of one.

Ms. JACKSON LEE. Thank you.

Mr. SCHIED. In terms of improving on financial management and

being able to provide some assurance, some positive assurance

about the controls that we have in place, I guess I would point to

a couple of initiatives that we have underway this year different

from what we did last year.

As you know in 2004, we had 10 material weaknesses and a disclaimer of opinion. And in 2005, we had 10 material weaknesses

and a disclaimer of opinion. Obviously, something didn’t work last

year in terms of making the improvements that were expected. I

think some improvements were made, but I was frustrated at the

rate at which improvements have been made.

So what is different this year? I think several things. First, the

way we get out of the hole is through corrective action plans. And

in all of the audit—the 10 material weaknesses break down to

many reportable conditions, actually probably hundreds of specific

findings that the auditors see when they come in and assess our

financial statements.

We have been kind of down at too low a level in trying to fix

some of those problems. That is, you have to recognize that they

all tie back up, and they all report back to—somehow relate back

to the 10 material weaknesses. I think we are taking a more holistic approach at how to fix those.

We are getting—and a couple of weeks ago, I wrote the inspector

general to engage on the internal controls audit and identified the

frustration I have and asked for their more active involvement this

102

year at monitoring our corrective action plan process. We have

changed the process itself.

There is a management directive forthcoming that will identify

a corrective action accountability official so that we have some

clear lines of who is responsible for fixing which material weaknesses. While it may involve many different players, there is ultimately someone that has to be held accountable to fix each of the

weaknesses.

We are improving our ability to track the weaknesses so that,

again, similar to what we had with the eMerge2 project, to know

when are we off track, is there something we need to do about it?

We will have a much more open system and a system that I believe

the IG and the auditors will also look at to be able to track whether or not we are making the progress.

What I found last year is you can go through, and you can execute the plans, and you can really get nowhere. And we want to

certainly avoid that from coming about again this year.

I think we are in a pretty good position to resolve a number of

the material weaknesses this year. If we don’t fully remediate

them, I would expect that work can be done. It is really about probably an 18-month process to successfully eliminate I think all the

weaknesses. We have a good chance of eliminating all the weaknesses. It is a lot of work, and we are committed.

And the last thing I would point out, I guess, too, is most of the

weaknesses are identified in two organizations—ICE and the Coast

Guard. And in the past year, they have had a renewed commitment. I mean, there’s a CFO at ICE that wasn’t there before, a new

assistant secretary. They have, you know, what used to be a plan

that was about yea thick. It is now about yea thick. I mean they

have put a lot more thought and effort into it.

I think they have increased their staffing. Likewise, within the

CFO’s office, we have increased staffing particularly for the internal controls group that is going to be responsible for overseeing our

corrective action plans. I think all of those things are going to

make a difference.

The Coast Guard is certainly stepping up to the challenge. They

have a number of weaknesses that they need to fix. I got an e-mail

a couple of weeks ago from Admiral Allen, forwarding me information just sort of out of the blue, showing how they are fixing some

of their weaknesses. I mean, it is that tone at the top that really

makes a difference as well.

And last week, or actually it was a couple of weeks ago now, Admiral Allen, the Assistant Secretary for ICE, myself, the inspector

general met with the Deputy Secretary to talk about progress.

Those are all changes that have happened over the past several

months and I think increase the likelihood that we will actually

make progress and demonstrable progress.

Ms. JACKSON LEE. Wow. Thank you.

The only question is, is that chart in the record that you keep

holding up? Is that something that we can——

Mr. PLATTS. I don’t think it was in your written testimony.

Mr. SCHIED. I can provide it.

Ms. JACKSON LEE. I would appreciate it.

103

Mr. PLATTS. Without objection, we will have it entered into the

record.

Ms. JACKSON LEE. I thank you, Mr. Chairman.

Thank you very much, both, for the hearing.

Mr. PLATTS. Thank you, Ms. Jackson Lee.

Want to come back to the issue of the shared services and the

center of excellence approach and first get an understanding that

what you are envisioning with the new eMerge2 approach is basically in line with what OMB talks about with their centers of excellence, you know, line of business for financial management.

And is that a correct understanding that it is one and the same?

Mr. SCHIED. It is in alignment with, but I guess I would—I don’t

know that I could tell you it is necessarily one and the same. That

is, basically, OMB says that their policy is that you will migrate

to one of their particular centers of excellence, or you will yourself

become a centers of excellence provider beyond your own agency.

And OMB allows for certain exceptions to that, and I think we

are one of the exceptions, and we are working closely with OMB

on this. That is, we want to sort of apply a similar concept within

DHS. I am not, at this point, interested in going out and selling

my services to other Federal agencies.

Mr. PLATTS. Now make sure, because we worked through this

with OMB, and my staff will correct me if I get this wrong from

our hearing with OMB, that it is exceptions, but not with the actual systems, the financial systems. There is a mandatory. You are

either a center of excellence or you migrate to one. I think in that

aspect, I thought it was mandatory that you have to do one or the

other?

Mr. SCHIED. I guess I understand it a little bit differently. I

mean, certainly, we are not—I am not precluding at this point that

some or I guess potentially even all of our systems will be met

through OMB centers of excellence. I guess we are taking a somewhat broader approach within DHS in that not only do I want to

migrate and consolidate systems, I am also interested in doing the

same with the services because I think——

Mr. PLATTS. And ideally, I think that is——

Mr. SCHIED [continuing]. Hopefully that is where you will get the

bang for the buck in terms of efficiencies, a smaller control environment, fewer systems, fewer processes in place.

Mr. PLATTS. Are you working with OMB in assessing Customs

and Border Patrol and Coast Guard, Federal Law Enforcement

Training Center? Are you working with OMB in how you are assessing your own agencies as centers of excellence?

Mr. SCHIED. We report to—at this point, we have weekly meetings with them, and they are monitoring our development of the

plan. And they will have to approve whatever plan we have going

forward.

Mr. PLATTS. Are there specific agencies? I mean, the ones I am

aware of seem to be Secret Service, Coast Guard, Federal Law Enforcement Training Center, and Customs and Border Protection.

Are those the ones you are focusing on for your centers of excellence?

Mr. SCHIED. Yes. I guess I had also just sort of—since it has been

used several times. I don’t really so much see it as centers of excelVerDate 11-MAY-2000 13:55 Oct 25, 2006 Jkt 000000 PO 00000 Frm 00109 Fmt 6633 Sfmt 6633 D:\DOCS\29709.TXT HGOVREF1 PsN: HGOVREF1
104

lence, and this may be kind of splitting hairs a little bit. Centers

of excellence could connote—if I had, say, multiple ones, say, CBP

and Coast Guard—that they would be in some way sort of forever

independent of each other.

I think however we consolidate our efforts, we want to be able

to also have a relationship between our centers of excellence, so it

doesn’t make them sound like they are islands unto themselves. I

want to have a plan going forward. I think sort of a long-term vision is that we would also look for opportunities to have business

arrangements even between the centers of excellence, say, one perhaps focused on one particular aspect of financial management, one

on perhaps a different element.

And in terms of centers of excellence concept, those are—the ones

you mentioned are the organizations we are interested—I mean,

that we have been looking at so far. They are the ones that have

the newer, relatively newer investments in systems.

Or there were a couple of considerations that we looked at. How

new is their system? How integrated is the system, that is, procurement, financial management, asset management?

I think, long term, you want to drive, do as much integration of

those systems as possible to eliminate, say, duplicate entry of financial information in the procurement system and then in the finance system, which is the case today in various places within

DHS.

Also their overall financial performance. FLETC, for example,

CBP—FLETC hasn’t had a stand-alone audit. We are having them

go through that, I believe, this year for 2006. CBP has had a balance sheet audit this last year. They passed it. Next year, actually

this current year, there will be a full scope audit.

So we want to take into account financial performance. I mean,

I think a financial service provider ought to be able to obtain certain standards of, say, excellence in order to be a financial service

provider.

Mr. PLATTS. I want to followup on that a little bit. Before I do,

though, I wanted to check if either—did you want to make a statement before I continue on? Ms. Jackson Lee, before I continue on

with some other questions, did you have other questions or comments?

Ms. JACKSON LEE. No. Simply to thank you, Mr. Chairman, and

yield back to you for your questions and look forward to the answers of the questions that we have raised in this hearing.

Thank you very much.

Mr. PLATTS. Thank you.

My, I guess, question or more a caution, I guess, is just to be

working very closely with OMB on what they clearly want is mandatory versus what is discretionary and be able to be just done inhouse regarding their Financial Management Line of Business approach.

And in our hearing with the OMB last week, we got a little more

delineation. But I think they still have a lot of questions they are

trying to answer. So before you get too far down the path with your

own entities, that you are certain are going to be line with what

they actually are going to demand from you in the end.

105

Mr. SCHIED. Certainly before we begin to execute on our plan,

they will approve the plan.

Mr. PLATTS. Let me switch to just one question on the internal

controls audit and kind of where you stand with your contractor

and kind of an update on the issue.

Mr. SCHIED. OK. On internal controls, I mean, we have really,

I think, over the past year have expanded our thinking quite a bit

to not see internal controls and the financial audit and the material weaknesses and the corrective action plans and the audited financial statements as being separate things. They are one and the

same thing.

That is the weaknesses that the auditors find in the annual financial statement, they are material weaknesses. And they are material weaknesses that are known to us and that we are attacking.

And so, as we go and go about assessing our internal controls, they

are not separate processes. It is one and the same.

And the way we are going about it this year is by identifying a

couple of the pervasive weaknesses that I think will have ultimate

ripple effects down to helping fix some of the other weaknesses

cited by the auditors. That is financial reporting, financial management oversight, and fund balance with Treasury. Those are key

weaknesses in the audit. They are a part of what our internal controls team is working on fixing, going through assessing what processes we have in place.

By taking the internal controls sort of angle to our material

weaknesses, it really gets us to looking at the systemic and root

causes of the weaknesses we have in place. That is, we are not just

trying to say put a band-aid on a particular weakness. We are looking at how the whole process works. You have to understand what

process you have working in place to really get down to the root

cause of the problems that you have and how you go about—how

you are going to go about fixing it.

I think in terms of the particular audit provision and how we are

relating with the IG and the auditor, the IG, the auditor, GAO, I

think also with you and your staff, have been kicking about what

the actual audit would consist of for 2006. My understanding with

the discussions with the IG at this point is that there is going to

be some additional work that, in this case, KPMG will do in addition to just the financial statement audit.

They will be looking at our internal controls and how we are

managing them through the corrective action plan process that is

I think the intention will be for KPMG to work with the IG to assess whether or not the changes that we are putting in place with

the corrective action plan are effective. And then they are going to

essentially periodically audit us on our performance against the

corrective action plan as well as the financial statement.

I think that, plus the ultimate statement of assurance that the

Secretary provides at the end of the year, will perhaps form a basis

for the IG then to provide some kind of opinion or express an opinion on the internal controls within DHS similar to what GAO does

on behalf of basically the entire Federal Government.

Mr. PLATTS. With the focus on your internal controls in that

audit and an opinion being expressed, in-house—asked earlier, if I

remember, by my colleagues—on the human capital side, do you

106

believe you are in good shape with your own staff to be able to

work with your contractor on the audit?

Mr. SCHIED. It is certainly a growing staff. We have added—for

2006, Congress appropriated several new positions specifically to

work—and that was actually the core that allowed us to reorganize

within the financial management office to form a core team that

will focus on internal controls and the corrective actions.

I think that we have brought the staffing in just the finance office up to about 21 this year. I believe in the 2007 request, there

is probably eight more positions that would go toward the finance

office as a whole and further bolster our efforts. So I don’t think

the staffing level is where it needs to be. The budget requests

more.

I would also say that we have put within the budget for 2007 requests throughout DHS that the CFO’s office was able to put. So,

for example, you will see going through the budgets $1 million requested in CBP, in FEMA, in ICE, in TSA; $2 million in the Coast

Guard.

It is a total of $16 million, actually almost $17 million that the

department is looking for in 2007 specifically related to those internal controls and remediating the material weaknesses.

So we have a good start this year. Congress provided additional

positions and about $4 million. That, plus the additional $12 that

we are looking for in 2007, will be able to expand the effort.

Mr. PLATTS. And the importance of that effort, of getting to the

root causes, as you said, is long term going to make a huge difference, I think, as you go forward. So we want that effort to succeed.

I have three what I think will be very quick answers for the

panel that will wrap things up here. First is just with Mr. Williams

and Mr. Hite, in hearing testimony here today and your efforts day

in and day out working with the department and taking this new

approach, one of the questions earlier to Mr. Schied was the question of timeframe.

Are you able to give your best guestimate on if we move forward

as planned and are successful, when do you think we see the financial house in order at DHS?

Mr. WILLIAMS. It is difficult to say at this particular point in

time. When you look at an organization like the Department of

Homeland Security that had 10 material weaknesses, 2 reportable

conditions, 7 noncompliance with laws and regulations, you are

looking at a huge organization that is very diverse.

One of the things that I was glad to hear today is that there is

a focus on the internal control issues because we, at GAO, have basically taken the position that achieving overall accountability is

not just getting a clean opinion on your financial statements. We

have known of situations where agencies have gotten a clean opinion on their financial statements on September 30th, and the books

were out of balance on October 1st.

The overall objective of the Chief Financial Officers Act was to

have systems, policies, and procedures in place that would produce

accurate, timely, and reliable information that could be used on a

day-to-day basis.

107

And I think when you get to the root causes, and that is addressing these internal control weaknesses—these reportable conditions,

these other issues that would require new policies and procedures—in addition to just putting a new financial management in

place, then you are getting to what the original intent of the Chief

Financial Officers Act is.

And a focus on the internal control environment, which is, as I

said, what I heard today, I think is a step in the right direction

for achieving overall financial accountability.

Mr. PLATTS. And that reason for this committee and our efforts

in pushing the importance of DHS being under the CFO Act and

then fulfilling the goals of that act.

Mr. WILLIAMS. That is correct. Because while the current administration was committed to the intent of the act, the overall philosophy behind the passage of the act back in 1990 was you want a

structure in place that not only is for today, but for 15, 20 years

from today. That you are still getting that good accountability that

we strive for.

Mr. PLATTS. OK. Thank you, Mr. Williams.

I think we are going to wrap up there, and if we do have any

followups, we will do in writing. And any items that you are going

to submit, we will be keeping the record open for the 2 weeks.

Appreciate all five of your testimonies and also your efforts day

in and day out at GAO and at the department, and the work you

are doing at the department certainly is about the safety and security ultimately of our citizens throughout the country.

So, Chairman Rogers, did you have a closing comment? We certainly have been very pleased to partner with your subcommittee

and look forward to continued cooperation and work with the department and GAO.

This hearing stands adjourned.

[Whereupon, at 4:57 p.m., the subcommittee was adjourned.]

[The prepared statements of Hon. Edolphus Towns and Hon.

Bennie G. Thompson, and additional information submitted for the

hearing record follow:]

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

125

Æ