DEPARTMENT OF HOMELAND SECURITY 

Office of Inspector General 

Audit of DHS’ Corrective Action Plan 

Process for Financial Reporting – 

Report No. 4 

OIG-07-29 February 2007

KPMG LLP 

2001 M Street, NW 

Washington, DC 20036 

January 17,2007 

Mr. David Zavada 

Assistant Inspector General for Audit 

Department of Homeland Security 

245 Murray Drive, SW Bldg. 410 

Washington, DC 20258 

Mr. David Norquist 

Chief Financial Officer 

Department of Homeland Security 

245 Murray Drive, SW Bldg. 410 

Washington, DC 20258 

KPMG LLP is pleased to submit this performance audit report related to several of the United 

States Coast Guard's finanical improvement activities. The activities were designed to address 

material weaknesses reported in the Department of Homeland Security's (the Department) 

independent auditors' report included in the fiscal year 2005 Performance and Accountability 

Report. Our audit included an evaluation of: 

The integrity of four Corrective Action Plans (CAPS) - Entity-Level Controls, Financial 

Reporting, Fund Balance with Treasury, and Actuarial Liabilities updated as of 

September 30, 2006. 

How well five contractor support plans align to address material weaknesses related to 

financial system improvement, project management, internal control policy development 

and testing, and financial reporting review and generally accepted accounting principles 

(GAAP) compliance. 

The status of the Financial Management Transformation and CFO Audit Remediation 

Plans defined in the memorandum dated July 3, 2006, from Commandant Thad Allen to 

CG-8. 

This performance audit is the fourth of a series of performance audits that the Department's 

Office of Inspector General has engaged us to perform for fiscal year 2006. This performance 

audit is designed to meet the objectives identified in the Background, Objectives, and Scope 

section of this report. 

We conducted this performance audit from October 10, 2006 to November 3,2006, in accordance 

with Government Auditing Standa~*ds, issued by the Comptroller General of the United States. 

The purpose of this report is to communicate the results of our performance audit and the related 

findings and recommendations. 
Since November 3, 2006, we have not performed any additional procedures with respect to this 

performance audit and have no obligation to update this report or to revise the information 

contained herein to reflect events occurring subsequent to November 3, 2006. 

The Department's Office of Inspector General has authorized this report to be sent electronically 

for the convenience of the Department. However, only the final hard copy of our report should be 

deemed our work product. 
Executive Summary 

Objective 

The Department's Office of Inspector General (OIG) requested a performance audit to evaluate 

the United States Coast Guard's (Coast Guard) development of four CAPs, the alignment of 

contractor support activities to the resolution of material weaknesses in financial reporting, and 

the status of the development of a strategic plan for financial management transformation, as 

directed by the Commandant's Intent Action Order #5 (the Order) dated July 3,2006. 

Overview 

The Coast Guard undertook a number of activities, including the development of CAPs, 

engagement of contractors, and issuance of internal directives, in an effort to resolve material 

weaknesses in financial reporting. 

The Coast Guard has drafted four CAPS to address material weaknesses in financial reporting 

related to Entity-Level Controls, Financial Reporting, Fund Balance with Treasury, and Actuarial 

Liabilities. The Department deems these CAPS to be critical steps towards its objective of 

obtaining an unqualified audit opinion on its consolidated financial statements, as well as on its 

intern1 controls over financial reporting. The CAPS were developed in the final months of fiscal 

a year 2006 by the respective process owners and were to include the identification of root causes 

of the material weakness, key success factors, key performance measures, verification and 

validation, risks, and resources requirements. 

Additionally, to assist in the implementation of the CAPS and the resolution of the material 

weaknesses, the Coast Guard awarded five contracts in August 2006 and September 2006, as 

follows: 

Deloitte Consulting, LLP (Deloitte) for project management and financial management 

support services. 

Okoye & Associates, LLC (Okoye) for internal control policy development and test plan 

development for compliance with internal control over financial reporting. 

PricewaterhouseCoopers, LLP (PwC) for financial reporting assistance, assistance in 

policy development, and compliance with guidance and regulations such as generally 

accepted accounting principles (GAAP), Federal Managers Financial Integrity Act 

(FMFIA), and Federal Financial Management Improvement Act (FFMIA). 

Global Computer Enterprises, Inc. (GCEI) for financial system audit remediation support 

focused on financial system security [two contracts]. 

Finally, Commandant Allen issued the Commandant's Order, which directed the establishment of 

a team to plan for transformation of the Coast Guard's financial management organization into a 

model of excellence. Accordingly, in July 2006, the Coast Guard chartered the Financial 

Management Transformation Task Force (FMTTF) with providing short-term win plans and a 

long(er)-term strategic plan of action and milestones (POAM) to advance the goal of earning 

sustainable, clean audit opinions. 
Approach 

Our assessment of the integrity of the Coast Guard CAPs (as of September 30,2006) focused on 

an evaluation of the following CAP elements: 

Identification of the underlying root cause(s) 

Development of an effective remediation plan 

Accountabilitv for establishing and successfully implementing the CAP 

Validation of the successful implementation of the CAP. 

The CAPs were the subject of three previous performance audits. Accordingly, we considered the 

revisions made to them since the last performance audit. 

Our assessment of the contracts focused on how well they aligned with efforts necessary to 

resolve the Coast Guard's material weaknesses. Specifically, we reviewed the methods used in 

developing the performance work statement (PWS) and their relationship to the material 

weaknesses. 

With respect to the Commandant's Order, our assessment focused on the identification of 

activities taken in response to the Order (six actions). However, the timing of our review 

coincided with the commencement of activities resulting from that order, and therefore, the 

intended outcomes of the execution of the Order have not yet been fully achieved. 

Our performance audit did not assess whether the CAPs, contracting actions, or actions taken in 

response to the Commandant's Order will resolve the respective material weaknesses. 

Summary of Key Observations 

During the course of the performance audit, we observed some underlying elements that were 

common among all objectives. Those elements are described below. Additional observations 

specific to a particular area of the performance audit are included within the Background, 

Findings, and Recommendations sections of this report. 

Coordination of Efforts 

The Coast Guard did not effectively coordinate its various remediation activities. It appears that 

the development and update of the CAPs, the development of the PWSs for the contracts, and the 

POAM were done concurrently and independent of each other. The activities were not adequately 

coordinated to form a single cohesive/comprehensive plan. In addition, there does not appear to 

be a single point of authority to coordinate the integration of remediation efforts and provide 

strategic oversight of each of these endeavors to help ensure that plans are coordinated and efforts 

are not duplicated. 

For example, both the CAP process owners and the FMTTF performed a root cause analysis. 

However, the work products of the FMTTF have not been integrated into the revised CAPs. In 

another example, the FMTTF has createdlwill create short-term plans to resolve select material 

weaknesses. These plans were described as supplements to the CAPs; however, these plans have 

not been included in the revised CAPs. 
Coast Guard management believes that the remediation of the material weaknesses will require 

completion of the action steps contained in the short-term plans, the milestones included in the 

CAPs, and the steps outlined in the long-term plan (the POAM). To reduce the likelihood that 

efforts are duplicated or that gaps do not exist in the plans, efforts will need to be coordinated and 

integrated. 

Root Cause Analysis, Plan Development, and VerificationWalidation 

The CAPs and the FMTTF POAM would benefit from detailed definitions and process-level 

analysis (e..g., A-123 analysis) of the underlying root causes of the material weaknesses. While 

these plans identified high-level "causes", they have not fully contemplated an assessment of the 

business processes and information systems that drive the transactions/activities giving rise to the 

material weaknesses. Implementing corrective actions without first determining whether all 

significant deficiencies affecting management's ability to support their financial reporting have 

been identified may risk missing some of the deficiencies and their underlying cause(s) and result 

in potential wasted time. For example, the Coast Guard has planned to adopt the "TSA general 

ledger platform" as part of the resolution to the Financial Reporting material weakness. Without a 

thorough analysis to determine all of the deficiencies and limitations of the current general ledger, 

the Coast Guard risks implementing a "solution" that may not resolve all deficiencies and thus the 

related material weaknesses. 

-& 

In addition, the Coast Guard has not defined procedures to assess the effectiveness of its 

remediation activities. The CAPs, contracts, and POAM did not contain activities for validating 

the effectiveness of the plans. While the plans did include goals, tasks, and milestones, they did 

not include an evaluation process to determine whether the material weaknesses have been 

resolved. However, the Coast Guard did indicate that such a process would be developed by their 

contractors. 

Contract Oversight 

The Coast Guard requires human resources to effectively execute and provide oversight for the 

execution of remediation activities. The Coast Guard is constrained both by low head count and 

by the lack of personnel with deep financial management and project management experience and 

capabilities. For example, although the Coast Guard has established overall accountability for the 

CAPs at a senior level, they have not assigned accountability for specific tasks at a detailed level. 

Coast Guard management stated that the resources to performloversee these tasks are currently 

not available. Furthermore, the shortage of qualified staff, including a designated leader, is 

impairing the Coast Guard's ability to continue the transformation efforts of the FMTTF. As a 

result, the Financial Reengineering team is not fully fielded to assist with carrying out FMTTF 

activities/actions. 

In response to these resource constraints, the Coast Guard has turned to contractors to assist in the 

remediation efforts. While the use of contractors helps alleviate the resource constraints, there 

appears to be an inadequate number of experienced and trained government staff to oversee the 

work. For example, the oversight of the estimated 150 contractors in the Financial Systems 

Division is shared among six Coast Guard staff. In addition, the government personnel providing 

oversight for the contracts do not have the credentials or experience in financial management 

oversight of complex organizations to direct or evaluate the quality of the work provided by the 

contractors. 
Summary of Key Recommendations 

During the course of the performance audit, we formed several recommendations related to our 

observations above. Additional recommendations specific to a particular area of the performance 

audit are included within the Background, Findings, and Recommendations sections of this 

report. Specifically, the Coast Guard should: 

Coordination of Efforts 

1) Develop a consolidated and comprehensive plan for all remediation activities and/or integrate 

the plan with other internal control assessment and remediation initiatives (e.g., OMB 

Circular A-123). The remediation plan should include: 

The incorporation of the POAM, the CAPs, and all subsequent actions performed to assist 

with remediation planning to form a single unified plan for all efforts and determine 

whether any current efforts, to include Lean Six Sigma implementation, should be 

continued, curtailed, or stopped. 

Work breakdown structures for each root cause once they are identified and validated. 

The work breakdown structures should include a detailed set of activities that include the 

process-level activities that must be addressed to resolve the issue, the individuals 

-- responsible for implementing the activities, the level of effort required by each individual 

to implement the activities, and detailed timelines with intermediate milestones for 

monitoring and reporting on work completed. 

2) Identify a designated Coast Guard "owner" or senior-level executive (e.g., DCFO) 

responsible for integrating and coordinating all financial management and reporting 

improvement initiatives. The owner should implement a process for integrating the contractor 

support efforts, FMTTF activities, and CAP updates. Such coordination and integration is 

needed to avoid duplicating remediation efforts and for reducing the likelihood of costly 

contract modifications. 

Root Cause Analysis, Plan Development, and VerificationNalidation 

3) Utilize existing contract support to review the identification of root causes for the CAPs and 

the analysis prepared to support the development of the remediation plans. The Coast Guard 

should develop detailed crosswalks for mapping root causes, related audit findings, and 

recommendations to address each material weakness. Further, the Coast Guard should 

undertake an independent validation and verification to determine whether the root causes 

listed in the CAPs are complete and adequately aligned to address the material weaknesses. 

4) Develop a risk-based approach for prioritizing activities and establishing the critical paths for 

resolving identified weaknesses. The Coast Guard should use materiality or business-risk 

analysis methodologies to identify high-value areas and prioritize efforts (e.g., use materiality 

to determine financial statement line items to take action in the near term). 

Contract Oversight 

5) Implement the navigational dashboard being developed by the PMO to standardize the 

reporting and tracking functions and define the criteria for evaluating percentage to 

completion of CAP activities. 
6) Ensure that resource requirements are identified, aligned, and in place to implement the 

CAPs. This will require the Coast Guard to ensure that all resource requirements are either in 

the budget for hiring or provided to the appropriate human resources personnel for rotations 

or reassignments within the Department. Alternative staffing models should be used in the 

near term until resources have been secured. Example alternative staffing models could 

include the use of detailees andlor long-term rotational assignments of Coast Guard or 

Department personnel. 

7) Provide Coast Guard personnel to oversee contracting efforts, evaluate work products, and 

monitor compliance with the SOWS. The Coast Guard must assemble an adequately trained 

and credentialed government staff that is sufficient in size to supervise all contractor 

performance. The staff should have the requisite knowledge and experience to direct and 

evaluate the quality of contractor work products. 

Background, Objectives, and Scope 

Background 

Off= of Management and Budget (OMB) Circular A-123, Management's Responsibility for 

Internal Control, states "Federal agencies are subject to numerous legislative and regulatory 

requirements that promote and support effective internal control. Effective internal control is a 

key factor in achieving agency missions and program results through improved accountability. 

Identifying internal control weaknesses and taking related corrective actions are critically 

important to creating and maintaining a strong internal control infrastructure that supports the 

achievement of agency objectives." 

OMB Circular A-123 builds upon the internal control framework within the Standards for 

Internal Control in the Federal Government (Green Book), issued by the U.S. Government 

Accountability Office (GAO), which defines internal control as "an integral component of an 

organization's management that provides reasonable assurance that the following objectives, 

effectiveness and efficiency of operations; reliability of financial reporting; and compliance with 

applicable laws and regulations are being achieved." 

Ten material weaknesses associated with internal controls were reported in the Department's 

independent auditors' report included in the fiscal year 2005 Performance and Accountability 

Report. The Department has undertaken an initiative to develop and implement a formal CAP 

process. Under this initiative, the Department has issued guidance and has deployed a Web-based 

software application, Electronic Program Management Office (ePMO), to manage the collection 

and reporting of CAP information for the Department and its components. Under this initiative, 

the Department's intent is to develop effective CAPs and position itself to move forward in its 

objective of obtaining an unqualified audit opinion on its consolidated financial statements, as 

well as on its internal controls over financial reporting. 

The first key milestone in the Department's CAP process required all components to develop 

CAPs for each material weakness and to submit them for input into ePMO by the Department's 

Office of the Chief Financial Officer (OCFO) by May 3 1,2006. The second key milestone was to 

submit revisions of the revised June 30, 2006, CAPs by July 12, 2006. Additionally, beginning in 

July 2006, each CAP was required to be updated within ePMO by the last day of each month. 
The September 30,2006, CAPs were used as the basis of our performance audit. 

Objectives 

This performance audit has three main objectives: (1) assess the integrity of the CAPs, updated as 

of September 30, 2006, related to 4 of the 10 material weaknesses that were cited in the 

independent auditors' report; (2) evaluate the alignment of 5 contracts awarded to support actions 

to correct specific material weaknesses; and (3) evaluate the Financial Management 

Transformation and CFO Audit Remediation task force activities taken in response to the 

Commandant's Order issued July 3,2006. 

Our performance audit was conducted in accordance with Government Auditing Standards, issued 

by the Comptroller General of the United States, specifically, the standards for performance 

audits. 

Scope 

The scope of our work included evaluating the integrity of the following CAPs updated as of 

September 30,2006: -A 

Entity-Level Controls 

Financial Reporting 

Fund Balance with Treasury 

Actuarial Liabilities 

Additionally, the scope included an assessment of how well the following contractor support 

plans aligned with efforts necessary to resolve the Coast Guard's material weaknesses: 

Deloitte, for project management and financial management support services 

Okoye, for internal control policy development and test plan development 

PwC, for financial reporting review and GAAP compliance review 

GCEI, for financial system audit remediation support [two contracts] 

Finally, our scope included a review of the FMTTF activities to assess if milestones had been met 

as outlined in the Commandant's Order. 

Our scope did not include procedures on any of the CAPS associated with any of the other 

material weaknesses cited in the Department's fiscal year 2005 independent auditors' report. 

Furthermore, our performance audit did not address the outcomes achieved as a result of the 

execution of the CAPs, contracting actions, or Commandant's Order, or the status of the material 

weaknesses. 

The timeline for this performance audit was as follows: 

Field Work - October 10,2006 through November 3,2006 

Draft Report - November 17,2006 

Final Report - January 17,2007 
Performance Audit Approach 

Our methodology consisted of the following four-phased approach: 

Phase I - Project Initiation and Planning 

We met with personnel from the Department's OIG to discuss the scope, timeline, and deliverable 

associated with the performance audit. After the OIG meeting, we held a kick-off meeting with 

various Coast Guard personnel and contractor representatives to review the objectives, scope, and 

timeline of the performance audit. 

Meetings were scheduled with the CAP process owners, Coast Guard representatives supporting 

the contractor support plans, and the FMTTF. 

Phase 11- Assessment of Process and Related Guidance 

Interviews: 

We interviewed personnel fi-om the Coast Guard on their understanding and 

-- implementation of the CAPS as of September 30, 2006, including, but not limited to, the 

root cause analysis performed, the critical milestones chosen for measurement, and the 

mechanisms used to monitor progress in meeting the milestones. 

We also interviewed Coast Guard personnel about their understanding and 

implementation of the contractor support plans, including, but not limited to, the 

development process and the alignment of the contracts to the material weaknesses. 

Additionally, we interviewed Coast Guard personnel about their understanding and 

implementation of the Financial Management Transformation and CFO Audit 

Remediation Plans outlined in the Commandant's Order, including, but not limited to, 

their approach for identifying short-term and long-tern remediation activitieslplans. 

Finally, we interviewed the independent auditors regarding NFRs issued in connection 

with the fiscal year 2005 and 2006 independent auditors' report. 

Documentation Reviews: 

We reviewed the CAPs, including both the detail and summary report, contained within 

ePMO and supporting documentation underlying the CAPs. 

We also reviewed the contractor support plans and supporting documentation (i.e., PWSs, 

project plans). 

Additionally, we reviewed the Commandant's Order dated July 3, 2006, and supporting 

documentation from the FMTTF. 

Finally, we reviewed the NFRs issued in connection with the fiscal year 2005 and 2006 

independent auditors' report. 

Phase 111 - Analysis 

We reviewed the Department's Corrective Action Plan Process Guide (CAP guide), relevant 

NFRs, work group charters, Department CAP workshop memorandum, and existing internal 

control monitoring guidance (e.g., OMB Circular No. A-123 and CAP guides published by other 

Federal agencies) for practices that would serve as our evaluation criteria. We then compared our 
understanding of the Department's existing CAPS to these practices to identify potential areas for 

improvement. These findings reflect situations that could negatively impact the Department's 

remediation of the material weaknesses if additional corrective action is not taken. 

We categorized the areas for improvement into one of the four broad phases generally found in an 

effective CAP analysis: 

Identification of the underlying root cause is an important action step in the CAP process. 

Accurate identification of the root cause mitigates the chances of recurrence. Often, 

merely the symptoms of the deficiency are identified rather than the root cause. By 

identifying only the symptoms, it is difficult to develop an effective CAP that will 

successfully resolve the deficiency. 

Development of an effective remediation plan is an appropriate way to cure an internal 

control deficiency. A key component of an effective plan is the inclusion of both 

attainable and measurable milestones to allow both the Department and the component to 

monitor the remediation process effectively. 

Accountability is vital to the CAP process because it necessitates the establishment of an 

individual CAP owner who is responsible for its successful implementation. The owner's 

responsibilities include helping to ensure that milestones are achieved and that the 

-A 

validation phase is completed. 

Validation is important in order to verify that the CAP has been successfully completed. 

The CAP should include activities that will provide evidence to support the closure of the 

CAP. These activities should include documentation reviews, work observations, and 

performance testing. 

For the contractor support plans, we reviewed the statements of work for each of the five 

contracts and compared them to the material weaknesses to determine if the contracts were 

structured in a way that promotes CAP development andlor refinement. We also reviewed the 

manner in which the contracts were developed and the oversight responsibilities for the 

contractors. We categorized the areas for improvement into three categories: 

Development of an effective PWS for the contracts. This is essential to the success of the 

project plan. Defining objectives, tasks, deliverables, and milestones are key for 

effectively outlining the work and monitoring progress. 

Accountability over contractor work efforts. Accountability is central to the contract 

process, as it establishes an individual who is responsible for overseeing the work of the 

contractors. 

Validation of the quality of the work performed by the contractors. 

With respect to the Commandant's Order, we reviewed the subsequent charter of the FMTTF and 

compared it to the actual activities of the task force to determine that a team was identified and 

tasked with leading the process being developed for resolving the material weaknesses. The 

review also included determining the degree of oversight established to oversee the 

implementation of short-term solutions identified in the plan. We also considered the timeliness 

of the deliverables outlined in the charter. 
Phase I V- Reporting 

After conducting our analysis in Phase 111, we formulated our findings and recommendations for 

each potential area of improvement identified. 

Background, Findings, and Recommendations 

Background information and our findings and recommendations related to the four CAPS, five 

contracts, and activities performed by the FMTTF are provided below. 

Corrective Action Plans 

The Coast Guard has drafted four CAPs to address material weaknesses related to Entity-Level 

Controls, Financial Reporting, Fund Balance with Treasury, and Actuarial Liabilities. The 

September 30,2006, CAPs were used for this review. 

Background 

In response to the fiscal year 2005 independent auditors' report, the Coast Guard developed CAPs 

to assist with implementing process and systems improvements covering Entity-Level Controls, 

~in&%ial Reporting, Fund Balance with Treasury, and Actuarial Liabilities. 

KPMG met with senior Coast Guard management concerning the CAP development process. In 

each case, with respect to root cause identification, the process included internal workshops and 

management-level discussions to identify the root causes of the material weaknesses. The Coast 

Guard relied heavily on first-hand organizational knowledge to identify root causes and develop 

the CAPs. During the root cause identification process, the NFRs relating to material weaknesses 

of the respective CAPs were considered; however, they were not the primary drivers for root 

cause identification. 

In the area of remediation plan development, the CAP process owners developed plans that were 

based primarily on intra-office collaboration and Department-sponsored workshops. The CAPs 

have been updated several times based on input received from the GAO tool (a summary of 

internal control activities) and internal review meetings. 

In the area of accountability, long-term success of the four CAPs is dependent on obtaining the 

necessary resources. Although the CAP process owners have identified initial resource estimates 

required for implementing the CAPs, the necessary government resources are not secured. This is 

impairing the Coast Guard's ability to assign accountability at the milestone/operational level of 

the CAPs. 

With respect to validation, formal plans to test and validate the activities of the four CAPs have 

not been established or developed. Coast Guard management indicated that validation plans 

would be developed for the four CAPs with the assistance of contractors. 

Findings 

To evaluate the integrity of the CAP, we reviewed the root cause identification process, the 

development process for the remediation plans, assessed whether accountability had been 
established, and whether a validation assessment (evaluation process) was included. During the 

course of the performance audit, we made the following observations and findings. 

Root Cause Identification 

Ongoing root cause identification continues to reveal weaknesses in the initial root cause 

exercise that was performed to draft the CAPs. There was no evidence provided that a formal 

analysis to include walkthroughs of business processes and related systems was performed to 

identifl all deficiencies or validate known or perceived deficiencies. This type of analysis 

would be necessary to evaluate the integrity or completeness of the root cause identification 

exercise used to create the CAPs. The principal determinant of root causes has been first-hand 

organizational knowledge by respective Coast Guard personnel, including CG-8 and FINCEN 

personnel. 

We could not determine whether the fiscal year 2006 NFRs have been considered in the CAP 

update process. Supporting system reviews, interviews, or surveys were not used in the root 

cause identification process, which could have assisted the CAP owners with understanding 

the process-level issues that are leading up to the root cause. 

For the CAPs we reviewed, it remains difficult to determine if all conditions of the material 

Weaknesses have been identified and whether the root causes that have been identified are 

a adequate to assist management with developing effective remediation plans. 

Financial Reporting CAP - Multiple root causes directly contribute to weaknesses in financial 

reporting. While the CAP has identified some of the issues that resulted in NFRs, they need to 

go much deeper to address system coding flaws and other contributing causes. For example, 

the transition from the DAFIS System to the Oracle System was not identified as an 

overarching issue (the processes used to migrate data and the transitioning of systems was not 

identified as a contributing factor), but appeared to be a significant root cause. 

Fund Balance with Treasury CAP - Similarly, the Coast Guard should continue to explore the , 

drivers underlying the issues with the Fund Balance with Treasury. For example, 

understanding "why" Coast Guard business processes and accounting are resulting in 

transactions posted to suspense accounts that cannot be supported will assist the Coast Guard 

with targeting the root causes of the problem and developing comprehensive remediation to 

clear suspense transactions timely and properly. 

Actuarial Liabilities CAP - The root causes do not appear to address the process-level issues 

that are contributing to systemic data problems and reconciliations. For example, the Coast 

Guard is not effectively executing a process to validate personnel and medical expenditure 

data prior to providing it to the actuary, thus negatively impacting the resulting actuarial 

calculations. Without a thorough analysis of business processes and related systems, the Coast 

Guard risks not identifying all of the problems and causes and, consequently, efficient 

resolution of the material weaknesses. 

Entity-Level Controls - While the Coast Guard has identified the need for qualified and 

trained personnel to establish a culture in which financial management is a priority, it has not 

fully identified the corresponding organizational structure or financial management oversight 

responsibilities or processes. 
Development of the Remediation Plans 

Coast Guard management did not consider business risks, materiality, or cost versus benefit 

analysis when developing the remediation plans. This level of analysis could assist 

management with targeting higher-risk areas and prioritizing activities. The plans include 

high-level work breakdown structures but not resource estimates for each subtask of the 

milestones or a formal process for reporting progress against each CAP'S milestones. The 

Coast Guard did not have detailed work breakdown structures below the major milestone 

level available for our review. Critical milestones appear to have been identified for each 

CAP; however, specific implementation stepslactivities have not been assigned to each 

milestone. We were informed that this level of detail related to milestone development is in 

the planning stage. Without formal work breakdown structures for its CAPs, the Coast Guard 

does not have visibility into the assignment of process holders to the level of effort required to 

monitor, implement, and report progress. 

The availability of qualified government resources continues to be a factor for the Coast 

Guard's inability to develop detailed plans and implement CAP activities. With respect to the 

Entity-Level Controls (Financial Management) CAP, senior CG-8 management indicated that 

the Department has no "bench strength" or available personnel to assist with overseeing and 

implementing the CAP, including policy efforts in the office. Likewise, the Financial 

Reporting CAP is currently being enhanced using contractor support, with particular emphasis 

placed on remediation plan development. For the Fund Balance with Treasury CAP, resource 

requirements for executing the CAP at the top level have been identified (resources required 

but not on hand), but not at the task level. 

Accountability 

For the four CAPs, accountability for all areas, including accountability below the process 

owner level, has not been fully determined. Coast Guard management indicated that resources 

remain deficient for CAP implementation, and we could not determine whether any of the 

full-time government personnel positions included in the CAPs have been placed in the 

budget or have been identified within the Department. Long-term success of the four CAPs is 

dependent on obtaining the necessary resources for oversight and implementation. We were 

informed that if the human resources identified in the CAPs are not in place, the plans are at 

risk and the timelines will require re-baselining. 

Validation 

The Coast Guard has not defined procedures to assess the effectiveness of its remediation 

activities. The four CAPs do not contain plans for validation or verification that the respective 

work is effective. While goals, tasks, and top-level milestones were outlined, the evaluation 

process to measure progress was not evident. 
Recommendations 

With respect to all four CAPs, the Coast Guard should: 

Root Cause Identification 

1) Validate the existing CAP root cause analyses. The Coast Guard should utilize existing 

contract support to review the identification of root causes for the CAPs and the analysis 

prepared to support the development of the remediation plans in coordination with A-123 

implementation efforts. This effort should assist in determining whether additional root 

causes exist, and in validating that the current CAPs are adequately aligned to address the 

material weakness and include the necessary steps to implement the CAPs. To develop 

remediation plans effectively, the Coast Guard must understand and identify the process 

and system-level factors that are contributing to the material weakness. Understanding 

the problem at the process/system level should assist with developing remediation plans 

and with establishing evaluation criteria for determining whether the plans are addressing 

the root causes and are properly aligned to correct the material weakness. 

2) Develop crosswalks to ensure all conditions leading to identified material weaknesses are 

tracked to the root causes. - - 

Development of the Remediation Plans 

3) Update the current work breakdown structures for the remediation plans after the root 

cause analysis and validation efforts are completed. Future updates to the work 

breakdown structures should be coordinated with the PMO to ensure all remediation 

efforts are integrated. The updated work breakdown structures should include the 

individuals responsible for implementing the activities, a detailed set of process and 

system-level activities that must be addressed to resolve the issues, the level of effort 

required by each individual to implement the detailed activities, detailed timelines with 

intermediate milestones, and methodologies for monitoring and reporting on work 

completed. 

4) Develop a risk-based plan for each of the four CAPs to prioritize tasks and assist with 

aligning resources to high-value tasks. The materiality of the financial statement line 

items to which the CAPs relate should be used as the basis for assessing risk. 

5) The CAPs should address alternatives for addressing resource constraints, such as: a) the 

transfer of other resources from departments within the Coast Guard; b) the use of 

contractors specified in terms of hours and period of performance for specific defined 

tasks, and c) the hiring of resources, including a plan to mitigate the risks of the hired 

individuals not completing sufficient training and not having sufficient logistical support 

to complete their assignments. Each of these plans should include a matrix to identify and 

prevent the duplication of contracting effort and to help ensure that such effort is aligned 

to assist the Coast Guard in addressing specific weaknesses and issues. 
Accountability 

6) Designate a Coast Guard owner or senior-level executive (e.g., DCFO) responsible for 

the coordination of all financial management and reporting improvement initiatives. The 

owner's duties would include the integration of contractor support effort, FMTTF 

activities, and updates to CAPs. The coordination of the various CAP efforts should help 

reduce the duplication of remediation efforts and potentially eliminate costly contract 

modifications. 

Validation 

7) Undertake an independent validation and verification to determine whether the root 

causes listed in the CAPs have been adequately implemented and whether the CAPs have 

resolved the material weaknesses. 

8) Implement the navigational dashboard currently under development by the PMO to 

standardize the reporting and tracking functions and define the criteria for evaluating 

percentage to completion. 

Contractor -- Support Plans 

a The Coast Guard has issued five contracts to assist with addressing the material weaknesses 

identified in the fiscal year 2005 independent auditors' report. The contracts covered system 

improvement (two contracts), project management, internal control policy development and 

testing, and financial reporting review and GAAP compliance. We assessed the PWS to validate 

whether the contracts considered the material weaknesses. We also reviewed the development 

process of the contract support plans for assigning accountability and providing government 

oversight. 

Financial System Contracts 

Background 

The CAS Financial System touches many of the 10 material weaknesses, and through the use 

of a Systems Audit Remediation Master Cost Sheet, the Coast Guard determined that the cost 

to remediate all the issues would total over $25 million. In order to prioritize the work, the 

Financial System Division consulted with other divisions in the Coast Guard and with the 

external auditors. From these discussions, management determined that the Financial System 

Security material weaknesses should be addressed first, reasoning that if the system lacked 

adequate security, the other functions would be irrelevant. 

To create the PWS, the Financial System Division developed a list of tasks they believed 

would address the specific deficiencies that were identified by the external auditors and 

recorded these tasks on the Systems Audit Remediation Schedule. The items were prioritized 

as described above, and prices for each task were determined with the help of the developer. 

Based on the funding allowed, the tasks at the top of the list were selected to be included in 

the PWS. Once the tasks were selected, the PWS was circulated to CG-8 leadership and to 

members of the Finance Center. Once consensus was reached, which took close to six 

months, the contracts were signed in August 2006. 
Findings 

To evaluate the development of the PWS and the relationship of the PWS activities to the 

material weaknesses, we reviewed the development process of the contracts, determined 

whether accountability had been established for the oversight of the contractor support, and 

verified that a validation assessment was included. During the course of the performance 

audit, we made the following observations and findings: 

Identification of Material Weaknesses to the Performance Work Statements (PWSs) 

While the individual deficiencies (NFRs) were prioritized and the contract was designed 

to resolve each independently, the identification of the root cause of the financial systems 

material weakness was not specifically addressed in the process of contract development. 

This condition supports the need for the root cause analysis and crosswalk described 

previously. Therefore, it is difficult to determine whether the contracts are properly 

aligned to address all deficiencies resulting in material weaknesses. 

Development of Contract Support Plans 

-- The contracts PWS and list of priority tasks are under dispute by members of 

management, which has caused delay in the performance of the contract and may result 

in costly modifications to the contract. It was disclosed that the dispute, made by 

management members who reviewed the PWS before the contract was signed, has caused 

some of the tasks listed in the contract to be put on hold until a consensus of the task 

priorities can be reached. 

In addition, a project plan was not provided for the contract work. It could not be 

determined if a plan existed or if the contractor is using the list of tasks provided by the 

Coast Guard as the basis of the project plan. 

Accountabilitv and Government Oversight 

Government oversight of contract performance does not appear to be adequate. The 

Division Chief and her five staff members must provide oversight of the estimated 150 

contractors in the Financial Systems Division. In addition, no formal review or approval 

process was evident in the development of the contracts. Regarding communications, email concerning the contract content is the only documentation of management 

involvement and the only evidence of accountability to the contents of the contracts. 

Validation of the Contracts to Address Material Weaknesses 

Due to resource constraints, the Coast Guard relies on additional contractor support to 

validate the success of the contractor's remediation activities. No formal process for 

validation was evident. 
Recommendations 

The Coast Guard should: 

1) Define specific expectations for the contracts, considering the root cause of the material 

weakness and NFRs (link conditions and consider recommendations). In addition, the Coast 

Guard should review the existing PWSs and consider modifications, if necessary, to align 

them with necessary remediation efforts. This effort should assist in confirming that the cause 

of the problem is being addressed and not just the symptoms, and should provide clear 

definitions for what needs to be done under the contract to assist with remediation efforts. 

2) Help ensure that project plans exist and are approved by the appropriate Coast Guard 

personnel for each contract. The plans should include detailed tasks and timelines for 

accomplishments. 

3) Enhance the contract development process to ensure management consensus is reached to 

preclude disputes about contract content after the contract is signed, thereby avoiding 

potentially costly contract modifications (longer periods can lead to more costly solutions). 

4) Provide adequate government human resources for the oversight and validation of contract 

Fork. Even though the contracts are fixed-price, the work must be reviewed for adequacy and 

- timelines must be met according to Coast Guard standards. 

Project ManagementIInternal Control Development/Financial Reporting Review Contracts 

Background 

A contract for project management and financial management support services was issued by 

the Coast Guard to assist with overall project management support and for the Entity-Level 

Controls (Financial Management) material weakness. This contract was intended to provide 

oversight of the other contracts that were in development to help ensure that no overlaps or 

gaps existed between the contracts and to assist the Coast Guard with FMTTF activities. This 

contract was awarded to Deloitte on September 15,2006. 

An issue that was fundamental to many of the material weaknesses was the lack of internal 

control. A second contract was developed that addressed internal control development, 

testing, and training. In review of the PWS, it appears that the tasks were designed to address 

compliance with OMB Circular A-123, Appendix A, Internal Controls Over Financial 

Reporting. This contract was awarded to Okoye on September 26, 2006. For this project, a 

subcontractor to Okoye is PwC. 

To address the financial reporting material weakness, a contract was developed to assist the 

preparation of many aspects of the financial reporting process; help ensure compliance with 

laws and regulations, such as FMFIA and FFMIA; adhere to GAAP; and assist in the 

development of a financial management policy. This contract was awarded to PwC on 

September 30,2006. 

To develop the contracts, the Coast Guard reviewed the deficiencies identified in the current 

and previous fiscal year audit reports and consulted with the external auditors. Members of 
the CG-84 group determined that the Coast Guard required additional staff, organization, and 

competencies to effect the necessary changes. Members of the CG-84 group developed the 

vision and worked with the contracting office to develop the specific PWSs for each of the 

contracts listed above. The contents of the PWS were reviewed by other members of the CG84 group. In addition, Resource Management (CG-83) was consulted to determine the 

resources available for the coming year. 

The oversight of the Deloitte and Okoye contracts is the responsibility of a member of the 

CG-8T organization. The oversight of the PwC contract is the responsibility of a member of 

the CG-84 organization. Moreover, Deloitte will be assisting in the oversight responsibilities 

as project manager. This oversight assistance includes reviewing the work of the other 

contractors to verify that the work complies with the strategic plans and that there are no 

overlaps or gaps in the work process. As one of the methods of observing the work of the 

other contractors, Deloitte will be attending the status meetings of the other contractors. 

Findings 

To evaluate the development of the PWS and the relationship of the PWS activities to the 

material weaknesses, we reviewed the development process of the contracts, and determined 

whether accountability had been established for the oversight of the contractor support and 

mether a validation assessment was included. During the course of the performance audit, 

we made the following observations and findings: 

Identification of the Material Weaknesses to the PWS 

While the Coast Guard has taken considerable steps to engage contractors to improve 

financial management and financial reporting business processes, the contracts lack 

specificity and direction, which increases the risks of wasting resources and failing to 

achieve intended results. In addition, since it remains difficult to determine whether all 

conditions of the material weakness have been identified through the CAP development 

process, it also remains difficult to determine if the contracts are properly aligned to 

ensure that the material weaknesses are addressed. 

Development of Contract Support Plans 

The contracts were put into effect prior to the delivery of the POAM developed by the 

FMTTF, and as a result, the contracts may need future modifications to align with the 

strategic direction of the POAM. Delaying the commencement of contract work may 

have delayed remediation of the material weaknesses; however, it may have been more 

economically prudent to align the contracts with the FMTTF strategic plan to avoid 

costly modifications to the contracts. 

Due to human resource constraints, the Coast Guard is relying heavily on contractor 

support to accomplish audit remediation tasks, including providing oversight of the 

contract work itself. Deloitte is assisting in the oversight of the other contractors to help 

ensure that goals are realistic, milestones are reached, and that industry leading practices 

are followed. Coast Guard management group personnel should be assisting Deloitte with 

these efforts. 
There is no formal approval process and no documentation to support the approval of the 

PWS content. Documentation was limited to e-mails revealing discussion of the contents 

among its reviewers. Therefore, there was no evidence of management approval of the 

contract content. 

. Modifications to contracts are not being adequately documented and approved. The 

contract for PwC has been modified through verbal agreement. The only written 

documentation of contract changes is e-mail confirmation from the contractor. The 

revisions included deleting seven of the nine original tasks in the PWS. Because the 

change was not considered to be outside the scope of the contract, it was decided not to 

incur the expense of a formal contract modification. 

Accountabilitv and Government Oversight 

As noted for the Financial System contracts, Government oversight of contract 

performance does not appear to be adequate. The Contracting Officer's Technical 

Representative (COTR) for these contracts is assigned more oversight than is normally 

expected. Additional trained COTRs should be identified and placed in oversight roles to 

distribute the work requirements for these contracts. Inadequate oversight increases the 

risk of wasted contract resources and not achieving the intended corrective action results. -.- 

Validation of Contracts to Address Material Weaknesses 

It does not appear that validation of the contracted work has been addressed. It is evident 

that the Coast Guard relies on contractor support to assist in the improvements to 

business processes and systems to resolve the material weaknesses. It is not evident how 

the Coast Guard will assess the success of these efforts. 

Recommendations 

The Coast Guard should: 

1) Continue efforts to validate the root causes of the material weaknesses as a prerequisite to 

developing the contract PWSs for remediation activities. This validation should help provide 

confidence that the causes, and not the symptoms, of the material weaknesses are being 

addressed by the contracts. 

2) Coordinate and align the contract support plans with the POAM developed by the FMTTF 

and the CAPS developed by the process owners. This should confirm that all staff and 

contractors are working toward a cohesive plan for the remediation of the material 

weaknesses. 

3) Assess the need for human capital, both in number and competency, and provide sufficient 

human resources to ease reliance on contractor support. 

4) Similar to the CAPS recommendation discussed previously, enhance the contract 

development process to ensure management consensus in reached to preclude disputes about 

contract content after the contract is signed and thereby avoiding potentially costly contract 

modifications (longer periods can lead to more costly solutions). 
5) Obtain additional contract technical managers and ensure they have obtained the appropriate 

COTR training and certification. 

6) Validate the success of the contract work. The validation should be documented in writing by 

the Coast Guard to determine whether performance measurements are established and 

reviewed to determine the adequacy and completeness of the contract work. 

Commandant's Intent Action Order #5 (the Order): Financial Management 

Transformation and CFO Audit Remediation Plans 

The Commandant's Order directed the establishment of a team to develop a plan to transform the 

Coast Guard's financial management organization into a model of excellence, capable of earning 

sustainable clean audit opinions. 

Background 

With the assistance of consultants, the team was directed to create a plan for resolving longstanding material weaknesses to include short-term corrective actions and longer-term 

systemic and organizational solutions. Short-term solutions were to be implemented 

immediately, where possible. This directive was followed by a charter for its implementation. 

ne charter specifically outlined the FMTTF, including its structure, mission, guiding 

principles, deliverables, and corresponding due dates. The deliverables included a short-term 

win plan, an analysis of the status quo, and an initial plan of action and milestones that 

includes a comprehensive review of the status quo and the recommended visionary end-state 

for the organization. 

The FMTTF began on July 17, 2006, and promptly created a list of shorl-term or "quick 

hitter" actions that could be readily implemented. For long-term strategies, the FMTTF 

researched external and internal financial requirements through the use of surveys, internal 

and external interviews, and review of the NFRs, material weaknesses, and current CAPS. 

Three different plans of action were developed and brought to an off-site meeting among 

process owners for discussion and feedback. Participants were divided into four focus groups, 

and each provided feedback on the same three strategy plans. From this, the FMTTF 

identified a primary plan option (A) and an alternative plan (B). These plans were sent to the 

participants for additional feedback. The result was the FMTTF final report, or plan of action 

and milestones (POAM). 

The FMTTF was led by a senior Coast Guard representative with leadership skills and 

financial expertise who was identified and approved by the Chief of Staff. The task force was 

composed of members from various communities of interest throughout the Coast Guard and 

contractors. 

To assess the progress of the POAM on an ongoing basis and allow adjustments to the plan as 

necessary, the Coast Guard will rely on the program management contractor, Deloitte. The 

POAM states that the contractor will utilize a "portfolio" management approach that includes 

identification of the Coast Guard's portfolio of projects and people that will execute financial 

transformation work, and development of strategies that will optimize resources and 

performance. The FMTTF developed an initial draft set of performance measures, which 

should be revised and/or expanded as the plan progresses. 
Findings 

To evaluate the activities taken in response to the Order (six actions), we reviewed the 

schedule and deliverables listed in the charter for implementing the financial management 

transformation and CFO audit remediation, and compared them to actual activities of the 

FMTTF. During the course of the performance audit, we made the following observations and 

findings: 

Action I - Group Formation 

The FMTTF was substantially staffed and functioning by July 15, 2006, with remaining 

members reporting no later than August 1, 2006. However, the duration of their 

assignments was limited and the group is now standing down. 

Action I1 - Contractor Support 

Though later than originally planned, the Coast Guard engaged contractor support. The 

"Big 4" consulting firm was to be in place by August 15, 2006. However, the contract 

was not executed until September 15, 2006. The support did not commence until 

September 22,2006. 

Action I11 - Short-Term Win Plan 

The short-term win plan was completed by the July 3 1, 2006, due date. However, initial 

due dates for some of the items listed on the short-term win plan were not realistic. When 

asked about the past-due items, the Coast Guard explained that the initial due dates, 

which were estimated completion times, were not reasonable and needed to change. 

Action IV - Status Quo Analvsis and Approach 

The FMTTF completed the project approach and status quo analysis in a reasonably 

timely fashion. The project approach and the analysis of the status quo were to be 

submitted by August 15, 2006. While the project approach was submitted by this date, 

the status quo analysis was submitted in two sections-external requirements and internal 

requirements on August 24,2006 and August 3 1,2006, respectively. 

Action V - Plan of Action with Milestones 

The POAM was to be submitted by October 1, 2006. However, it appears that this 

deadline was established before the level of effort to accomplish this task was 

determined. The completion date for the POAM was revised to November 9, 2006, by 

Coast Guard management. The resources required to execute the POAM are not assigned. 

After the delivery of the final report (the POAM is included within the final report) on 

November 9, 2006, the FMTTF will stand down. The POAM proposes that, in its place, 

the Financial Management Transformation organization (CG-8T) be chartered and tasked 

with completing the planning, implementing the actions identified in the POAM, and 

identifying the actions necessary to achieve and sustain clean audit opinions. The CG-8T 

organization would be made up of three teams: Financial Reengineering, Internal 
Control, and Audit Remediation. Currently, there is only a skeleton staff in place. In 

addition, although it was suggested by the FMTTF that the Coast Guard Deputy Chief 

Financial Officer should lead the new CG-8T organization, this position is currently 

vacant. Therefore, there is neither a leader nor sufficient staff to carry the POAM 

implementation forward. 

Action VI - Leadership and Stakeholder Awareness 

Coast Guard Leadership TeadFMTTF briefings were held regularly and the FMTTF 

activities and progress were noted in Coast Guard-wide e-mails. The POAM was 

developed with the assistance of stakeholder surveys and focus groups. The Coast Guard 

took actions to increase leadership and stakeholder awareness through these briefings and 

meetings. 

Recomrnenda tions 

The Coast Guard should: 

1) Secure adequate human resources to complete the planning and to implement the actions 

identified in the POAM, as well as to identify actions necessary to achieve and sustain clean -- audit opinions. Further, the CG-8 team should be led by an individual with sufficient 

leadership skills, financial expertise, and the authority to implement changes. 

2) Document in writing any changes to directives, whether in tasks or due dates, and include the 

written approval by the appropriate authority or authorities. Although documentation in 

briefings and dashboards indicate that Coast Guard leadership may have been aware of the 

delays, it does not indicate their approval. 

3) Ensure that the POAM is integrated with the CAPS. To ensure that efforts are not duplicated 

or that gaps do not exist in the plans, all activities, timelines, and schedules need to be 

coordinated and integrated. 
U.S. Department of Commandant 

Homeland United States Coast Guard 

United States 

Coast Guard 

2100 Second Street, S.W. 

Washington, DC 20593-0001 

Staff Svmbol: CG-842 

7000 

8 Jan 2007 

MEMORANDUM 

From: RDML R. S. Branham 

COMDT (CG-8) 

Reply to CG-84 

Attn of: CAPT D. L. Hill 

202-372-3610 

To: Mr. David Zavada 

Assistant Inspector General for Audit 

Department of Homeland Security 

Subj: FEEDBACK ON DRAFT PERFORMANCE AUDIT NR. 4 REPORT 

1. Thank you for the opportunity to comment on your draft performance audit report related to 

several of the Coast Guard's financial improvement activities. In general, we concur with the 21 

recommendations contained in the report. In fact, as a result of our efforts ongoing at the time of 

the audit and since completed in several areas, we have already taken aggressive action on many 

of the recommendations. We've conducted several briefs to the DHS CFO, DHS IG staff and the 

DHS IG during the last month, all of which reflected some of the corrective action 

accomplished: 

a. Integration of our corrective action plans and Financial Management Transformation 

Task Force (FMTTF) plan of action and milestones; 

b. Development of additional milestones to expand root cause analysis; 

c. Development of risk-based, prioritized milestones and associated tasks to aid in 

sequencing and funding initiatives; and 

d. Assignment of initial resources to begin executing the FMTTF plan of action and 

milestones - now an integrated set of initiatives and related milestones. 

2. I have three comments on the findings outlined in the report that I recommend you consider 

before going final with the report: 

a. Page 3, under Coordination of Efforts: I do not agree with the statement that "the Coast 

Guard did not effectively coordinate its various remediation activities." While it is true that our 

FMTTF efforts began after we initiated our CAP activities earlier in the spring of 2006, we 

realized at the outset that our CAP process needed to be an integral part of developing the 

FMTTF's plan of action and milestones. As such, CAP owners participated extensively during 

the entire FMTTF process and the resulting POAM includes their input. Due to the timing 

differences of the two efforts, we then followed up with an extensive integration of the two 

efforts to eliminate conflicts and redundancies. As indicated in paragraph 1 above, we now have 
Subj: FEEDBACK ON DRAFT PERFORMANCE AUDIT NR. 7000 

4 REPORT 8 Jan 2006 

a single, integrated set of milestones in place. In addition, our efforts with the contracts 

reviewed under this performance audit were an integral part of our FMTTF and CAP process. 

For example, the Deloitte performance work statement was written specifically to obtain support 

for the FMTTF and CAP efforts, and the performance requirements include specific tasks 

necessary to successfully carry out the efforts of our project management office. We have found 

their support to be invaluable, and we expect that same level of support to continue as we pursue 

execution of our integrated and comprehensive project plan. Furthermore, the Okoye and PwC 

performance work statements were written specifically to provide support for existing CAPrelated work (i.e., internal controls and financial reporting), and we in fact have found these 

contractors' support to be especially crucial to our overall efforts now that we have integrated 

milestones in place for both of these initiatives. 

b. Page 11, under Root Cause Identification: While the Coast Guard recognizes that the 

root cause analysis is not yet complete in all areas, your report as written does not adequately 

reflect the extensive level of root cause analysis we've already undertaken. More specifically, it 

should be noted that at the time of this performance audit, an extensive business process and 

controls analysis had already been completed by PwC for Financial Reporting, Funds 

Management (Fund Balance with Treasury) and Entity Level Controls as part of our efforts to 

implement the DHS multi-year internal control initiative. In fact, some of the identified gaps 

were included in our 30 Sep 2006 version of the Coast Guard's CAPs. In addition, a very 

detailed gap analysis was completed by the FMTTF as part of developing the strategic plan of 

action and milestones. As indicated above, we have since integrated our CAPs and FMTTF 

efforts and have developed additional milestones to expand our root cause analysis even further. 

c. Page 17, under Accountability and Government Oversight: the statement that "The 

contract technical managers for the Deloitte, Okoye, and PwC contracts do not have Contracting 

Officer's Technical Representative (COTR) certifications and, therefore, may not be trained in 

the duties and responsibilities of this position" is not correct. The current COTR for these 

contracts is certified as such, and she is backed up with a Coast Guard subject matter expert to 

support her in carrying out her duties. Nevertheless, we acknowledge that this same COTR is 

assigned more oversight responsibilities than is normally expected. We are in the process of 

training additional COTRs and exploring other options to provide the COTR oversight resources. 

2. While we recognize the importance of root cause analysis, we also recognize the urgency of 

beginning the process of fixing known problems. The audit feedback provided in this report will 

allow us to make necessary course corrections along the way, and we're committed to working 

hard to incorporate your recommendations, especially as they relate to strategic coordination and 

contract coordination and oversight. In this vein, and with the assistance of our newly formed 

Project Management Office (PMO), we are establishing formal processes for tracking, 

monitoring and reporting the status of remediation efforts, and for providing quality control 

monitoring of completed tasks. I will provide you with more details on the PMO and quality 

monitoring procedures when I provide the more detailed narratives to back up the 

Comprehensive Project Plan milestones I forwarded to you last month. 
Subj: FEEDBACK ON DRAFT PERFORMANCE AUDIT NR. 7000 

4 REPORT 8 Jan 2006 

3. I would be happy to meet with you to discuss our feedback. I would appreciate an 

opportunity to review the report one more time before it goes to print. In the meantime, we look 

forward to a continued strong relationship with the DHS IG and KPMG as we implement our 

multi-year financial management improvement plan. 
Report Distribution 

Department of Homeland Security 

Secretary 

Deputy Secretary 

Chief of Staff 

Deputy Chief of Staff 

General Counsel 

Executive Secretary 

Commandant, USCG 

Under Secretary for Management 

Assistant Secretary for Policy 

Assistant Secretary for Public Affairs 

Assistant Secretary for Legislative and Intergovernmental Affairs 

Chief Financial Officer 

Chief Information Officer 

USCG Chief Financial Officer 

USCG Chief Information Officer 

USCG Audit Liaison 

Chief Privacy Officer 

DHS GAO/OIG Audit Liaison 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees, as appropriate 
Additional Information and Copies 

To obtain additional copies of this report, call the Office of Inspector General 

(OIG) at (202) 254-4100, fax your request to (202) 254-4285, or visit the OIG 

web site at www.dhs.gov/oig. 

OIG Hotline 

To report alleged fraud, waste, abuse or mismanagement, or any other kind 

of criminal or noncriminal misconduct relative to department programs or 

operations, call the OIG Hotline at 1-800-323-8603; write to DHS Office of 

Inspector General/MAIL STOP 2600, Attention: Office of Investigations – 

Hotline, 245 Murray Drive, SW, Building 410, Washington, DC 20528; fax 

the complaint to (202) 254-4292; or email DHSOIGHOTLINE@dhs.gov. The 

OIG seeks to protect the identity of each writer and caller.