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68–465 2011

[H.A.S.C. No. 112–64] 

ORGANIZATIONAL CHALLENGES IN 

ACHIEVING SOUND FINANCIAL 

MANAGEMENT AND AUDIT READINESS 

HEARING 

BEFORE THE

PANEL ON DEFENSE FINANCIAL MANAGEMENT 

AND AUDITABILITY REFORM 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

HEARING HELD 

SEPTEMBER 15, 2011 
(II) 

PANEL ON DEFENSE FINANCIAL MANAGEMENT 

AND AUDITABILITY REFORM 

K. MICHAEL CONAWAY, Texas, Chairman 

SCOTT RIGELL, Virginia 

STEVEN PALAZZO, Mississippi 

TODD YOUNG, Indiana 

ROBERT ANDREWS, New Jersey 

JOE COURTNEY, Connecticut 

TIM RYAN, Ohio 

PAUL FODERARO, Professional Staff Member 

WILLIAM JOHNSON, Professional Staff Member 

LAUREN HAUHN, Research Assistant 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2011 

Page 

HEARING: 

Thursday, September 15, 2011, Organizational Challenges in Achieving 

Sound Financial Management and Audit Readiness ........................................ 1 

APPENDIX: 

Thursday, September 15, 2011 ............................................................................... 19 

THURSDAY, SEPTEMBER 15, 2011 

ORGANIZATIONAL CHALLENGES IN ACHIEVING SOUND FINANCIAL 

MANAGEMENT AND AUDIT READINESS 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Andrews, Hon. Robert, a Representative from New Jersey, Ranking Member, 

Panel on Defense Financial Management and Auditability Reform ................ 2 

Conaway, Hon. K. Michael, a Representative from Texas, Chairman, Panel 

on Defense Financial Management and Auditability Reform .......................... 1 

WITNESSES 

Architzel, VADM David, USN, Commander, Naval Air Systems Command ...... 4 

Fedder, Maj. Gen. Judith A., USAF, Director of Logistics, Deputy Chief of 

Staff for Logistics, Installations and Mission Support, U.S. Air Force ........... 5 

Smith, Martha, Director, Defense Finance and Accounting Services (DFAS) 

Cleveland .............................................................................................................. 6 

Stevenson, LTG Mitchell H., USA, Deputy Chief of Staff, Logistics, G–4, 

U.S. Army ............................................................................................................. 3 

APPENDIX 

PREPARED STATEMENTS: 

Architzel, VADM David ................................................................................... 33 

Conaway, Hon. K. Michael .............................................................................. 23 

Fedder, Maj. Gen. Judith A. ............................................................................ 39 

Smith, Martha .................................................................................................. 47 

Stevenson, LTG Mitchell H. ............................................................................ 25 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

[There were no Questions submitted during the hearing.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Mr. Conaway ..................................................................................................... 59 

(1) 

ORGANIZATIONAL CHALLENGES IN ACHIEVING SOUND 

FINANCIAL MANAGEMENT AND AUDIT READINESS 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, PANEL ON DEFENSE FINANCIAL MANAGEMENT AND

AUDITABILITY REFORM, Washington, DC, Thursday, September 15, 2011. 

The committee met, pursuant to call, at 8:00 a.m. in Room 2212, 

Rayburn House Office Building, Hon. K. Michael Conaway (chairman of the panel) presiding. 

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE FROM TEXAS, CHAIRMAN, PANEL ON DEFENSE FINANCIAL MANAGEMENT AND AUDITABILITY REFORM 

Mr. CONAWAY. Good morning. Thanks everybody for being here 

at our hearing this morning for the defense management and 

auditability reform panel. I would like to welcome today the folks 

who are going to testify on the organizational challenges in achieving sound financial management and audit readiness. 

In our first couple of hearings, we received testimony about the 

DOD [Department of Defense] level and at the military department 

level on the challenges faced in attaining audit readiness by 2017. 

One of the primary challenges relates to DOD’s large and complex 

organizational structure. DOD operations include a wide range of 

defense organizations, including military departments and their respective major commands and functional activities, large defense 

agencies and field activities. 

Today we will hear from representatives from a military systems 

command, logistics community and the defense agency providing finance and accounting services to DOD components. These organizations play a key role in DOD’s ability to improve its financial 

management and achieve audit readiness. 

Although you normally would not associate the acquisition, 

sustainment, logistics communities with financial management, 

military commands and these functional communities generate and 

maintain financial activity that flows into DOD’s financial statements. For example, logistics systems used to provide tactical units 

with information on maintenance and transportation of equipment 

are the same systems used to provide asset information for reporting and financial statements. Without proper controls within these 

functional communities, DOD will not be able to achieve 

auditability. 

The Defense Finance and Accounting Service provides financial 

accounting services to the DOD components. In fiscal year 2010, 
2 

DFAS [Defense Finance and Accounting Service] processed 169 million pay transactions, paid 11.4 million commercial invoices and 

disbursed $578.0 billion. Since their activities are so integral to the 

financial activity reported in the DOD’s component financial statements, challenges faced at DFAS must be addressed in order for 

DOD to progress towards auditability. 

During these times of resource constraints and budget cuts, it is 

imperative that the Department of Defense have reliable, useful 

and timely information for decision making. Therefore, it is critical 

that all DOD organizations within and outside of the financial 

management community work together to achieve effective fiscal 

management. 

I would like to thank our witnesses for taking the time out of 

their schedules to be with us this morning. First up this morning 

will be Lieutenant General Mitchell Stevenson from Deputy Chief 

of Staff, Logistics, G–4, United States Army; Vice Admiral David 

Architzel, Commander, Naval Air Systems Command; Major General Judith Fedder, Department of Logistics, Deputy Chief of Staff, 

Logistics, Installations and Mission Support, U.S. Air Force; and 

Ms. Martha Smith, Director of Defense Finance Accounting Services, Cleveland. 

I will now turn to my colleague to sub Joe Courtney for an opening statement, if he chooses. 

[The prepared statement of Mr. Conaway can be found in the Appendix on page 23.] 

Mr. COURTNEY. The Admiral appreciates that moniker. Thank 

you, Mr. Chairman. And again, just to save time for the record, Mr. 

Andrews prepared an opening—well, there it is. The man is here. 

I will yield to the gentleman from New Jersey, Mr. Andrews. 

STATEMENT OF HON. ROBERT ANDREWS, A REPRESENTATIVE 

FROM NEW JERSEY, RANKING MEMBER, PANEL ON DEFENSE FINANCIAL MANAGEMENT AND AUDITABILITY REFORM 

Mr. ANDREWS. I thank my friend from Connecticut for his brilliant statement and apologize to the chairman for being late. We 

appreciate the witnesses being here this morning. 

I am looking forward to this morning’s hearing because I think 

it takes us another level down—I don’t mean that in a judgmental 

sense—another level of specificity in our mission. The chairman 

began the hearings at the DOD level. We talked about the department-wide effort to reach the auditability goal in time. We then 

went to the service level last week and heard about the plans of 

the services, and I think we have assembled before us this morning 

ladies and gentlemen who will execute the service plans because 

they are dealing with the actual stuff. You know, how much rolling 

stock we still have left in Iraq and Afghanistan, as the General and 

I spoke about the other day, that you can’t have good auditable financial statements if you don’t have a good control and data information system. And I think we are talking to some individuals this 

morning who do that very well. 

So, Chairman, thank you for this next step in our process. I look 

forward to the hearing. Thank you, Joe. 
3 

Mr. CONAWAY. Rob, thank you. General Stevenson, you are up. 

Thank you. 

STATEMENT OF LTG MITCHELL H. STEVENSON, USA, DEPUTY 

CHIEF OF STAFF, LOGISTICS, G–4, U.S. ARMY 

General STEVENSON. Chairman Conaway, Ranking Member Andrews, rather than read my opening statement, I would ask that 

it just be admitted to the record. 

Mr. CONAWAY. Without objection. 

General STEVENSON. And then I will quickly summarize just a 

couple of the key points within it. 

As the senior logistics staff officer in the Army, I can assure you 

that we logisticians fully understand the importance of auditability 

and, in fact, are working closely with our teammates in the financial management community to help the Army get there. Two key 

areas that we are working on are property accountability and modernizing our entire logistics automation enterprise from foxhole to 

factory. 

First in the area of property accountability. As you can imagine, 

maintaining detailed property accountability like we do in peacetime is difficult at best while fighting two wars. So last July our 

Army Chief of Staff launched a property accountability campaign 

to help focus the entire Army on ensuring that we operate within 

a culture of stewardship and supply discipline. I would be happy 

to elaborate on the details of that during the Q&A. 

As I am sure you appreciate, accountability requires senior leader participation at every level. So we use the Army’s inspection and 

audit agencies to ensure compliance. We have assigned senior chief 

warrant officers to logistics staffs to provide oversight to both commanders and unit supply personnel, and we have caused there to 

be a significant increase in command supply discipline inspections 

Army-wide. We are getting after it. 

Second, in the area of logistics automation, we are in the process 

of implementing the Global Combat Support System–Army based 

on a proven commercial product, in fact the business market’s leading software in integrated maintenance, supply and financial accounting. Logistics transactions such as the acquisition of capital 

property, the performance of maintenance, the receipt, storage and 

issue of supplies will be linked to their financial consequences at 

the transaction level. This will be a first for the Army, and it will 

be key to establishing auditable business processes. We have the 

system fully deployed in the 11th Armored Cavalry Regiment in 

Fort Irwin in California. Next month we will test it at Fort Bliss 

in Texas. And starting next summer, we will begin fielding Armywide active, National Guard and Reserve, a total of 160,000 users. 

GCSS–Army [Global Combat Support System–Army] will help 

make auditability a reality for the Army and we project it will save 

us a considerable amount of money in the outyears. Related to 

GCSS–Army, we also now have fully fielded something called the 

Logistics Modernization Program, which is the logistics system we 

use at the national level in our depots and arsenals and ammunition plants. It is based on the same leading commercial software 

as GCSS–Army, enabling an easy exchange of information between 

the two systems without costly interfaces. It is now fully deployed 
4 

throughout the Army Materiel Command to 25,000 users and is 

helping us more accurately capture data associated with the $24 

billion inventory and two million in daily transactions that are performed at that level of the Army. LMP [Logistics Modernization 

Program] will enable the entire business area at the national level 

to also be auditable. 

Together, these systems, along with the General Fund Enterprise 

Business System and a continued commitment to improving property accountability will enable the Army to better trace logistics operations costs and provide transparency. We will have more confidence in our data and will be able to make more informed decisions, thereby reducing waste and saving the taxpayer money. 

We are pretty excited about it, and I look forward to your questions. 

[The prepared statement of General Stevenson can be found in 

the Appendix on page 25.] 

Mr. CONAWAY. Thanks. David. 

STATEMENT OF VADM DAVID ARCHITZEL, USN, COMMANDER, 

NAVAL AIR SYSTEMS COMMAND 

Admiral ARCHITZEL. Congressman Conaway, Congressman Andrews, members of the panel, good morning. Thank you for the opportunity to discuss the Naval Air Systems Command’s efforts in 

achieving and sustaining audit readiness. Mr. Chairman, I appreciate turning this ship into the wind right on time and going to the 

launch at 0800. That is impressive, sir. I appreciate that. 

As a Commander of Naval Air Command of about 37,000 people all told and about $45 billion per year in TOA [Total Obligation 

Authority] and approaching about 289 over the FYDP [Future 

Years Defense Program], I am personally committed to the Navy’s 

financial improvement initiatives. Achieving and sustaining audit 

readiness by standardizing financial processes to provide accurate 

and auditable information that supports program execution decisions is one of my top priorities. NAVAIR’s [Naval Air Systems 

Command] financial improvement program and business process 

standardization efforts are being led by accounting and financial 

management experts with the strong support from functional experts across my command in multiple business process areas, to include acquisition, contracts, logistics, human resources, corporate 

ops. 

To support the Department of Defense efforts at achieving 

auditable financial statements, NAVAIR is performing an assessment of the E–2D Advanced Hawkeye Program. The goal of 

NAVAIR’s E–2D MDAP [Major Defense Acquisition Program] 

project is to demonstrate financial stewardship of funds allotted for 

a major acquisition program and assess the audit readiness of the 

Navy Enterprise Resource Planning, or ERP, environment related 

to business processes. We are on track for completion of our assessment at the end of September this month. 

The NAVAIR team is taking lessons learned from the E–2D 

MDAP effort and developing an audit readiness strategy to deploy 

across the command over some 110 other MDAP programs. This 

strategy will stress the importance of internal controls, compliance 

with regulations, maintaining an audit trail and other concepts 
5 

that will contribute to NAVAIR’s ability to achieve and sustain 

audit readiness. NAVAIR is leveraging Navy ERP to strengthen internal controls, enhance standardization, and improve the quality 

of information available to our decisionmakers. 

Having implemented an ERP pilot, which was entitled Sigma 

back in 2002, NAVAIR is a second generation ERP user and has 

significant experience with Navy ERP and relies on the system for 

all of our business operations, including project planning, funds 

execution, funds validation and support of procurement and contracting, training and awards processing, time and attendance, accounting and external financial reporting. The implementation of 

Navy ERP has provided increased fidelity of our financial data, 

providing our program managers timely insight into program execution and the ability to track dollars committed, obligated and expended and give program managers and field teams increased visibility in the interdependencies of program costs, schedules, resources and risks. 

NAVAIR supports the Navy, DOD and congressional direction to 

improve the quality of financial information and business processes 

necessary to achieve clean financial audits by 2017. I am and, more 

importantly, my entire command is committed to achieving these 

initiatives and believe that the resources invested will produce a 

significant return on investment to the warfighter and the American taxpayer. 

I look forward to your questions, sir. 

[The prepared statement of Admiral Architzel can be found in 

the Appendix on page 33.] 

Mr. CONAWAY. Thanks, David. Judy. 

STATEMENT OF MAJ. GEN. JUDITH A. FEDDER, USAF, DIRECTOR OF LOGISTICS, DEPUTY CHIEF OF STAFF FOR LOGISTICS, INSTALLATIONS AND MISSION SUPPORT, U.S. AIR 

FORCE 

General FEDDER. Mr. Chairman, Mr. Andrews, distinguished 

members of the panel, thank you for the opportunity to appear before you today to discuss several issues that are important to your 

United States Air Force sound financial management, audit readiness and responsible stewardship of taxpayer dollars. 

The Air Force logistics community is fully engaged in supporting 

and achieving financial improvement and audit readiness compliance by 2017. Our plan to meet that timeline involves evaluation, 

discovery and mediation of the many facets that affect audit readiness. We are making progress on that plan by ensuring established 

inventory controls and equipment accountability processes produce 

the maximum combat capability from each taxpayer dollar and 

equip our warfighters with the critical assets required to support 

operational demands. We are also implementing corrective actions 

where necessary to ensure assets are recorded in the appropriate 

accountable system of record, valued at the correct amount and 

that assertions for existence and completeness are timely and accurate. 

The value of audit readiness is more than financial. It is fundamental to what we do every day across the Air Force logistics enterprise that enables us to responsibly procure, store and issue in-
6 

ventory and equipment that contributes to our mission. We are reinforcing that message with operational units at every level to ensure that all airmen are doing what it takes to achieve a clean 

audit. 

Mr. Chairman, Mr. Andrews and distinguished members of the 

panel, it is an honor to be here today. Thank you for your interest 

and engagement on this important effort as we work towards audit 

readiness in 2017, and thank you for your continued strong support 

of our airmen and their families. 

I submitted a written statement for the record, and I look forward to the question-and-answer period. 

[The prepared statement of General Fedder can be found in the 

Appendix on page 39.] 

Mr. CONAWAY. Thanks, Judy. Martha. 

STATEMENT OF MARTHA SMITH, DIRECTOR, DEFENSE 

FINANCE AND ACCOUNTING SERVICES (DFAS) CLEVELAND 

Ms. SMITH. Chairman Conaway, distinguished panel members, I 

am pleased to be here to discuss the financial services DFAS provides the Department of Defense and the complexity involved in 

providing those services. I will discuss our efforts to get DFAS as 

a service provider to the DOD to an audit-ready state by fiscal year 

2017, as well as discuss how we are helping our customers meet 

their assertion goals. I am providing detailed information on this 

issue in a statement for the record. 

DFAS provides centralized payroll and commercial payment and 

financial reporting services for the military and its civilians. We 

also provide the summary level financial reports Congress uses to 

monitor the financial health of the military services. To illustrate 

the complexity of our work, all financial reporting begins with a 

single transaction. It can be as simple as a DOD civilian inputting 

their time and attendance or as complicated as defense officials 

drafting a multi-million dollar contract for a major weapons system. 

Each of our 169 million pay transactions for fiscal year 2010 had 

an associated line of accounting. Consolidated into 1,129 active 

DOD appropriations, each transaction must be reflected in over 255 

million general ledger accounts. 

Just as an example of the complexity, the current Black Hawk 

Helicopter Program consists of three contracts. Funding is distributed among several services and foreign military sales. Since the 

original contract award, there have been almost 1,700 contract 

modifications and we have made approximately 22,000 payments 

for nearly $7.8 billion. Since fiscal year 2009 alone, DFAS has received approximately 211 monthly invoices for disbursements averaging $188.0 million per month. 

Nearly all DOD transactions make their way to one of our many 

systems, some owned by the services but used by the DFAS employees. Employees create or monitor the transactions, validate authenticity and accuracy, consolidate the transactions into reports 

and validate the accuracy of those reports. We project DFAS will 

disburse approximately $668.0 billion in fiscal year 2011. Additionally, each month we reconcile approximately $100.0 billion worth 
7 

of transactions, $85.0 billion in disbursements and $15.0 billion in 

collections. 

Our legacy systems are originally designed to provide local level 

management reports and summary level information used to prepare financial statements. Over the years, much of the transaction 

processing a statement preparation shifted from the services to 

DFAS. It is a challenging effort. And added to the mix are the new 

ERPs, Enterprise Resource Planning systems, used by the local 

level commands, produce financial information for the programs. 

The ERPs provide a level of discipline and standardization that is 

extremely beneficial to DOD’s audit efforts and internal controls. 

However, a massive amount of data is still fed into the ERPs from 

the legacy environment since the ERPs do not process all types of 

transactions such as military pay and civilian pay. 

Visibility and traceability of transactions is integral to any audit. 

So we are working hard to ensure our processes are audit ready. 

DFAS efforts to standardize and strengthen internal controls began 

20 years ago. Since 1991, we have reduced our footprint from 300 

to just 10 sites and standardized our day-to-day activities in improving and eliminating systems. By consolidating field level accounting and finance functions into our financial reporting entities, 

we have a better opportunity to standardize processes and data 

and to fix problems at the source. 

DFAS’s most valuable asset is our people, and we have made investments to strengthen our workforce. Today, 85 percent of our accountants have degrees. Since 2007, we have seen an 88 percent 

increase in the number of certified public accountants and certified 

management accountants and a 322 percent increase in project 

management professionals and their certifications. 

To support customers’ audit efforts, we have mapped processes, 

implemented control points, tested internal controls and mitigated 

risk for many key processes. We use the overarching principles 

from the DOD Financial Improvement and Audit Readiness Plan to 

ensure audit readiness is focused on day-to-day activities, that a 

proactive approach is used for correcting deficiencies and our improvement initiatives are sustainable. 

Our goal is to be prepared when the customers assert on specific 

parts of the financial statements. We also must be prepared for examinations of the services we provide customers that contribute to 

their assertion schedules. We have established audit readiness 

teams to provide realtime support during pre-assertion preparation 

during the audit and post audit. 

We have partnered successfully with the Marine Corps and identified improvement initiatives which we can replicate for the other 

services, And we are establishing a senior steering committee to 

proactively implement lessons learned from all audit findings. 

DFAS is walking in concert with our customers, expediting improvement initiatives, addressing systems challenges, and moving 

toward audit readiness and the goals established by DOD and Congress. 

The support of our senior most leaders, involvement of every employee in the process, and the continued collaboration with our customers are all key to our success. 
8 

Chairman Conaway and distinguished members, thank you for 

your time today, and I look forward to your questions. 

[The prepared statement of Ms. Smith can be found in the Appendix on page 47.] 

Mr. CONAWAY. Well, I thank the witnesses. This may be a record, 

four witnesses doing their statements in less than 20 minutes. 

Thank you very much. We will endeavor to stay on the 5-minute 

clock as well. And with just four of us, we may get to go more than 

just one round. I appreciate everybody being here, and thank you 

very much for having it. 

The top layer of folks have talked about putting in place performance evaluation measures for people who are responsible for making this happen and then holding them accountable to those standards. Can you give us a quick couple of sentences about each of 

your four organizations and how you are making sure that—the 

wonderful things you said, Martha, are spot on, but unless you 

track it, unless you hold folks accountable, it is not going to happen. So could you talk to us about how the uniform as well as the 

civilian personnel, how you make sure they have got the right incentives in place and that we measure those—progress? 

General STEVENSON. Sir, I think you sort of alluded to it. The 

Secretary of the Army has directed that starting in fiscal year 2012 

and forward, all senior leaders involved in both logistics, finance 

and those things necessary to get us auditable will have a requirement to have in their appraisals the measures of their performance 

in toward meeting that goal. They will be rated on how well they 

supported the goals. I think that will be enormously motivating. 

Mr. CONAWAY. Okay. David. 

Admiral ARCHITZEL. Mr. Chairman. It is very similar on the 

Navy side. Today if I was to look at my senior executives who has 

a performance evaluation that goes into maintaining audit readiness or these kind of things, today I would say it is probably my 

comptroller. But starting in fiscal year 2012, anyone that is involved in generating a financial transaction is going to have accountability within their senior executive performance appraisals. 

That will get down to deputy PO [petty officer] levels who are 

clearly responsible for generating transactions or into the many 

people that go within that as well. 

On the admiral, sort of the flag side of the house, I would tell 

you that our Vice Chief has been very clear with the series of—directing memos about we will take this serious across our flag community to make sure that it is also brought home on the military 

side. So it is reflected in our evaluations and fitness reports as we 

go forward there as well, sir. 

General FEDDER. Mr. Chairman, the Under Secretary of the Air 

Force and the Vice Chief of the Air Force sent a note out to all of 

the major command commanders, those operational commands, the 

four-stars that really have the airmen that are touching the systems and directed that both from a functional side that the performance plans of our senior civilians include specific performance 

measures associated with financial improvement audit readiness. 

And those measures—their performance will be measured in that 

regard. 
9 

On the command side where we have airmen that are out there 

that are effecting the inventory precision and doing things that are 

also going to contribute to audit readiness, they have also emphasized to major commanders—major command commanders that it 

is important for commanders at all levels to understand the importance of achieving these. And the measures overall that we expect 

to see to the effectiveness of this very heavy senior leadership involved in this will be the continued success that we have when we 

assert existence and completeness, for instance, as we continue 

down with our FIAR [Financial Improvement and Audit Readiness] 

execution plan. 

Ms. SMITH. Most all of the components associated with becoming 

audit ready are an integral part of our overarching strategic plan, 

and we have pushed our plan down into our performance appraisals for all of our employees, all the way down to the lowest levels, 

trying to inculcate that culture of audit readiness into what we do 

on a day-to-day basis. 

Mr. CONAWAY. Rob and I will look forward this time next year 

to visiting with a variety of folks just to see how well that has 

worked and if deadlines were missed and those kinds of things if 

we are able to make that happen. 

Rob, 5 minutes. 

Mr. ANDREWS. Thank you, Mr. Chairman. Thank you to each of 

the witnesses for a very thorough and good job. 

Ms. Smith, I really concur with your comment about personnel 

being the key to making these audits available. When, God willing, 

the economy turns back up and accountants can go into the private 

sector, what kind of inducements do we have to retain the talent 

that we have at your agency in the public sector? What are the incentives and advantages to do that? 

Ms. SMITH. Well, I think the security that we provide the employees has been extraordinarily beneficial and we have seen a lot 

of employees recently coming in from outside industry looking to 

the government for a good secure type of job. The incentives that 

we use, we have a very comprehensive award program that we 

have across DFAS in terms of even down at the lowest level on 

passing awards between employees. But we strive to again keep 

the audit readiness at the top of our strategic goals. And so therefore, we are looking for all types of innovation and incentives to ensure that we—— 

Mr. ANDREWS. You certainly made impressive gains in the preparation and quality of the workforce. We certainly want to protect 

that investment. 

General Fedder, I am impressed by the degree of intensity the 

Air Force has given to corrective action. It looks like at the highest 

levels, there is weekly, as I understand it, reviews of what is going 

on. Can you tell us an example of a couple of corrective actions that 

you have had to follow up on and what you have done to follow up 

on them? 

General FEDDER. Yes, sir. Mr. Andrews, when we proceeded to 

assert spare engines, for instance, as one of our operating materials 

and supplies, we did identify that there were some gaps in our policies associated with inventories and how we report the spare engines through this process. And so we went back and had to iden-
10 

tify a clarification and changed a policy in the reporting process of 

those spare engines. 

Mr. ANDREWS. Does that mean it was possible that we reported 

more spare engines than we really had or we missed them? What 

does it mean at the practical level? 

General FEDDER. In this case, we identified that about 30 percent 

of the units were not properly reporting the inventory of spare engines and there wasn’t the catch in the system that we would have 

expected to identify that there was—— 

Mr. ANDREWS. This is a perfect example of why we have this 

panel. And I commend the chairman and ranking member for creating it. It is possible that if you didn’t fix that problem, it is possible that we would have made a financial decision to purchase 

more engines or more parts when we actually had them. So you 

buy something you don’t need. The opposite is true, by the way, 

that we might erroneously believe we have spares and we don’t and 

not have the readiness that we should. So keep up the good work. 

Admiral, I know that there was an ERP pilot in the Navy in 

2002. I wonder what the most important lessons learned were from 

that pilot and how you have applied them to this broader effort 

that you are engaged in now. 

Admiral ARCHITZEL. Thank you for the question, sir. In 2002, one 

of the pilots—there were several pilots in the Navy. NAVAIR had 

one of them and it was called Sigma. It was a first generation ERP 

system. In that ERP system, it allowed us to get financial visibility 

across all of our programs. So you had the ability to take our data 

input from PBUSE [Property Book Unit Supply Enhanced] or our 

budget inputs and it would come down to line item disbursement 

through appropriations and right down into accounts. So program 

managers had the visibility without having to manually enter that 

data and continue then to verify and do a lot of manual rework. 

And that creates errors. Any time you have variation in process, 

that is not a good thing. 

Mr. ANDREWS. So you are able to reduce those errors by—— 

Admiral ARCHITZEL. Absolutely. Yes, sir. And over the time, approximately 260 man-years in terms of what I would say would be 

in our experience with ERP, we eliminated in Sigma, which was 

the first generation ERP, about 55 legacy programs. And since we 

have incorporated to Navy ERP, it has been about four. 

Mr. ANDREWS. What was the reference to 260 man-years? 

Admiral ARCHITZEL. Man-years. Reduction in man work to do the 

kinds of things I am talking about, about tracking dollars, about 

validating and verifying—— 

Mr. ANDREWS. In other words, one person working for 260 years 

would have had to do these tasks and now you have eliminated 

that? 

Admiral ARCHITZEL. Yes, sir. 

Mr. ANDREWS. We should try that around here, Mike. 

I am going to ask for a second round if we have a chance because 

I did have a question for General Stevenson, but I am going to 

yield back at this point. If we could do a second round, I would appreciate that. Thank you. 

Mr. CONAWAY. Steve, 5 minutes. 
11 

Mr. PALAZZO. Good morning. Thank you all for being here to continue our conversation on such a very important issue. I think from 

a lack of attention in the past there is a reason why we are here 

again today and be here probably next year. But really, I am excited about the improvement that we have made in addressing 

these issues. Last week I was kind of more focused on, you know, 

the sharing of information between the DOD services and the agencies. 

And, Ms. Smith, you mentioned taking the lessons learned, having an after-action review and then sharing them with our partners 

across the DOD industries and other logistics in air and DFAS. 

Can you all just share—I am kind of wanting to know, one, is what 

has been some of the major obstacles or hurdles to achieving audit 

readiness, as well as, you know, maybe just some success stories? 

I think you all mentioned some of them, it has been answered. And 

also just your lessons learned. And how are you going about sharing your information with the other branches and other services. 

Ms. SMITH. I can start. We learned a great deal from our efforts 

that we have done with the Marine Corps audit. One of the areas 

that we were focusing on is how do you reconcile all of this data. 

We receive data from the legacy systems. We will be receiving data 

from the ERPs, et cetera. So how do you give the visibility of that 

data to the auditors? Through the Marine Corps audit, we realized 

we had to give visibility of that data all the way from the beginning of the transaction all the way through to the financial reports. 

So we have created reconciliations across the board for all of the 

services and we are working on systems that will help us do that 

and be able to show the auditors that this transaction can flow all 

the way from the financial statements back to the source. And we 

can retrieve that source documentation for them. Those are some 

of the big ones. 

But we have a steering committee that we are setting up that 

goes across the board on lessons learned so we can as a DFAS entity, we can help all the services with that. 

General FEDDER. Sir, as we have progressed with our plan to 

achieve audit readiness, some of the things that we have seen as 

a success story is the value of data cleanup within our systems. 

And frankly, we learned this from some of our fellow service efforts 

that are a little bit farther along in the Air Force in some cases. 

But we have seen that in order to be able to use legacy systems, 

for instance, those systems that we have now that are not under 

an ERP, the value and necessity of making sure that the information that we put into our logistics systems for things like inventory 

management and accountability have got to be very exacting and 

that before we can really achieve a clean audit in a lot of those systems we need to go back and ensure the accuracy of that data. 

That is one of the things that we continue to work on as we adapt 

our legacy systems and we mediate those systems to make sure 

that we can achieve the audit. Some of the obstacles that we have 

identified so far are specifically within those systems. 

As has been mentioned by one of my panel peers, the use of the 

systems that are not under an ERP tend to be very personnel intensive because of the fact that our systems don’t talk to each 

other. We have inventory accountability systems that are not nec-
12 

essarily linked all the way in an end-to-end business process. And 

that requires a lot more manual labor to make sure that we can 

provide that exactness associated with an audit. 

Admiral ARCHITZEL. Congressman Palazzo, thank you for the 

question. As you look at the value of what we have for this effort 

in terms of what it is, I would say one thing for me as a commander, it is a team sport. And I think we have to—I have been 

trying—I am driving that home throughout the command because 

we won’t succeed if it is just a comptroller viewed activity. And it 

is not. So if you look at every process that we have that generates 

a financial transaction, there are people that are in contracts, that 

are in engineering, that are in testing that contribute to that efficacy of that process. 

So what we are doing is taking every one of these areas where 

we generate a financial transaction and end-to-end processing, look 

at the business processes that go with it, look at the controls that 

are in place to control that process, find out where we are not in 

control and then do something about it. 

There are examples of that I would give in civilian pay where we 

had things—we were recording our civilian pay and we knew what 

was going on, but we actually found what we didn’t have was the 

actual ability to ensure that how do we reconcile that within, say, 

if there is not accounted for civilian pay. It was done differently in 

different areas of my organization, different competencies. We have 

standardized that now. And by doing that, we have a standardized 

business process which is key to it. So our financial improvement 

process is important. It feeds into the overall ability to say we are 

ready financial, audit readiness. But above everything else, command involvement and command participation throughout the 

process. 

Mr. PALAZZO. Thank you. 

Mr. CONAWAY. Joe, 5 minutes. 

Mr. COURTNEY. Thanks, Mike. General, your testimony was really impressive in terms of actually, you know, just coming out and 

saying that you anticipate $8 billion in savings with this new system starting in 2017, you know, which sort of takes this thing out 

of just the—sort of the theoretical and into real numbers, which obviously is important to everybody in this committee who has been 

going through these hearings on the challenges facing the Pentagon 

coming up. 

Can you talk a little bit about, you know, what—where does that 

come from? Is that, you know, waste, fraud and abuse? Is that, you 

know, other ways that you can feel comfortable projecting that savings? 

General STEVENSON. Sure. It comes from a number of different 

locations, but probably the one that is I think the easiest to understand is we will not have to do so much reconciling between separate instances. Today the architecture—and I was going to, sir, answer your question if it had gotten to me—that our biggest problem 

has been our architecture. We have got stovepipe systems at each 

of our echelons that have to then pass the data at end-of-day processes. And if the communications somehow get interrupted in part 

of that—and if you can imagine doing that in Afghanistan or Iraq— 

then maybe there is pieces of that data you are missing, you are 
13 

losing or it posts after—because data is important to be posted in 

a time sequence manner. And so you end up having to have lots 

of people at each of the echelons and in the financial community 

trying to match the receipts, the issues, the cancellations, the 

change—did it get charged against the ledger, did it not get 

charged against the ledger. All of that is going to go away in our 

ERP system because it will all be a Web-based system operating 

off of a single database and so that there is no need to reconcile 

anything. And all of that I think is going to go away and that will 

be a huge part of what we save. 

Mr. COURTNEY. I mean, that sounds like actually a fairly modest, 

you know, prediction on your part because you are not sort of getting into other ways that you may pick up, you know, duplication 

or waste or whatever, I mean. So I guess we have got nowhere to 

go but up from that $8 billion figure assuming you have got a really high functioning system. Is that a safe statement to make? 

General STEVENSON. I think so. And of course there is costs associated with implementing the system. So what we have tried to do 

is figure out through a business case what is the net savings to the 

Army. We think our payback starts in 2019, that we will have paid 

for what we have done in just that short period of time. 

Mr. COURTNEY. Admiral, you have been nodding your head. I 

don’t know if you want to chime in. 

Admiral ARCHITZEL. I couldn’t agree more with the—the ERP for 

us within 1–0—it is really acquisition financial management. When 

you get to 1–1, that is our single supply system. So when we get 

into that—by having that across the Navy, if you will, in our 

SYSCOMs [System Commands] and into the NAVSUP [Naval Supply Systems Command], we then have visibility on all of our supply 

pieces and parts, which is the first time you can actually see end 

to end. You want to see an F–18 all the way down from when it 

is on the flight line to the parts that are supported and needed and 

where those parts are and where they exist, and that would reduce 

sparing, it would reduce warehousing. That is where you will get 

significant savings from ERP, above and beyond that which you 

get—and I mentioned before—the business end of doing accounting 

and reconciliation which is on the 1–0 piece. So I think it is a tremendous one in there. 

I do have some concerns and that would be, you know, in terms 

of it is not a simple thing to do to take the inventory today and 

map them into ERP. It is a very time consuming effort to go forward. We are in a phased approach to do that, And I know we will 

get there. But it is not a given that it will be a simple bill, but it 

is well worth the effort in doing that. 

Mr. COURTNEY. And in terms of, you know, trying to get the resources there to get that transition done—I mean, Admiral 

Roughead has talked about, you know, the fact that with—again 

some of the cost savings and efficiencies that the Navy needs to 

find, that a lot of personnel are going to be sort of being moved 

closer to the waterfront and out of sort of, you know, offices. Is that 

going to kind of create a challenge in terms of that? Or is that 

something that you think the Navy can handle, assuming again 

people are being deployed a little bit more in frontline positions? 
14 

Admiral ARCHITZEL. Well, personally I think we need to move 

people closer to the flight line. That is where the activity is. That 

is where our support is to the warfighters, at the tip of the spear 

if you will. So I am an advocate for things—in our FRCs [Fleet 

Readiness Centers], for example, about moving those assets closer 

to the flight line, about being able to have them spread to where 

our fleets concentration areas are. So I think that is a proponent 

of it. 

There is an inherent problem in how we did contracting before 

in some areas when you get into supply systems. If I was to look 

at a previous contract, you would see there would be a line item 

that would say spares. And it would have, who knows, 800 spare 

items that would be listed, but they would be listed—and that was 

just one line item in there that says spares under an equipment 

line item number. Within that and made an appendices to that 

would be handwritten inventories that goes with those spares. To 

go forward in the ERP, what we need to do under improving the 

system would be to break those out into individual line items that 

come right down—and you can call out then. And then from the 

day you award that contract, you can track that spare from contract award—DFAS can track it, we can track it, supply systems 

can track them all the way through. And that is what will eventually lead to the ability to do the things like valuation and configuration management and accreditation. 

Mr. COURTNEY. Thank you. 

Mr. CONAWAY. We will do a second round if everybody has questions. 

Human nature is such that you are comfortable with doing 

things the way you have done it in the past. And you have all 

talked about legacy systems. And there is a tension because all of 

this change you are doing is—you don’t get to take a year off from 

everything else you are doing in order to make this happen, you 

have got to continue to provide whatever data you have been providing at the exact same time. But you don’t get to double your 

workforce to do this. You just have to—everybody has to do it. So 

there is—I have observed in the past—a tendency to hang on to 

stuff longer than you needed to. 

We have talked to the other folks about this as well. How best 

do you track the demise of legacy systems and all of the associated 

costs that go with just maintaining those and the extra work that 

is associated with that? How do you track—do you have a plan that 

says at the end of the day we are going to have all of these legacy 

systems that are going to be gone so that you know and from our 

oversight standpoint that we will know that you are down to just 

those systems that are needed and necessary to make this thing 

work and we are not clinging to something because it is just an old 

comfortable pair of shoes that work? 

Martha, do you want to start? 

Ms. SMITH. Sure. Within the DFAS walls, we have eliminated a 

lot of systems over the years. And we are seeing the benefits of the 

ERP. And believe me, we would like to see the legacy go away as 

fast as possible. However, we have been dealing with the legacy for 

a long period of time. So in terms of the data flows, we have got 

that pretty well nailed down and then we are, you know, adding 
15 

the ERP stuff to it. But within the DFAS systems, we have eliminated a lot of systems. We have tracked that. And we are pretty 

comfortable with the new systems that we have in place now. So 

I think we are moving along in the right direction in that area. 

General FEDDER. Mr. Chairman, frankly I don’t think that there 

is any tendency in the Air Force logistics community to want to 

hang on to those legacy systems when we have the opportunity to 

transition to something like an ERP, specifically for the Air Force, 

the expeditionary combat support system. We have seen in the 

pilot of ECSS [expeditionary combat support system], although that 

hasn’t yielded as much information as perhaps the other service 

ERPs have yielded so far, but we have seen the value in being able 

to better provide that total asset visibility. 

So for the airman at the unit level who is responsible for receipt, 

proper storage and accountability of spare parts, for instance, that 

airman can easily see through the ERP system and the way that 

system is going to provide connectivity with all our systems. They 

can see the value of the workload that is reduced associated with 

that in delivering a better product to the warfighter. 

Admiral ARCHITZEL. Mr. Chairman, it is a great question and it 

is not an easy one. Let me just try and say that on the outset, certainly legacy systems—I think personally we need to look at legacy 

systems in a way that some legacy systems are not all bad. We 

need to understand what they are and not just make this blanket 

statement that all legacy systems are bad. Let me explain. 

When I talked about Sigma, we came on ERP in Navy, NAVAIR, 

we had about 55 systems retired. And those were principally in financial management areas we could do that. Since we have been 

on ERP, one of those systems we retired actually is Sigma. So there 

has been four. The Navy is on track—I believe the number is 196 

retired legacy systems with about 14 done to date. But when you 

look at what it is—I would say that in the area of NAVSUP, for 

example, they retired legacy systems that were based on 

FORTRAN [IBM Mathematical Formula Translating System] and 

those kind of things. They needed to be retired. There are going to 

be tremendous savings. But I look at today—your point is a good 

one. I have to operate today and provide direct support to the fleet 

out there, to the Hornets that are on station, the 60 ‘‘Romeos’’ 

[MH–60 Seahawk helicopters] that are out there and know what is 

their configuration, what is their ECPs [engineering change proposals], what do they need, know what their health and management systems are. I have vehicles today to do that. They could be 

supplanted or taken over into an ERP system. We need to carefully 

evaluate what the costs are to do that and what the true benefit 

is of that. So there is a place when we do this in a metered fashion, 

not just to say blanketly we are going to get rid of every system. 

Mr. CONAWAY. But you have got a plan to track that? 

Admiral ARCHITZEL. Yes, sir. Absolutely. 

General STEVENSON. Sir, I have been appointed the logistics domain owner for all logistics systems in the Army. We started out 

with over 800 different systems, some small, some large. And my 

goal is to reduce them down to our ERPs. And as of the last—I do 

a quarterly review. As of last review, I think we are down to about 
16 

160. I also control the dollars that sustain those systems. So it will 

be very easy, I think, to enforce discipline in getting rid of them. 

Mr. CONAWAY. Thanks. Rob. 

Mr. ANDREWS. Thank you, Mr. Chairman. General Stevenson, 

thank you for your testimony. I also wanted to explore, as Mr. 

Courtney did, the genesis of this $8 billion savings estimate. Could 

you walk us through how you derived that projection? 

General STEVENSON. Yes, sir. It comes from a number of components. One is inventory reduction. We think that there is about 

$2.0 billion worth of inventory reduction we can get to by having 

visibility over what we have got, being able to move it around and 

not have individual entities buying their own. 

Mr. ANDREWS. Let us not have more than we need? 

General STEVENSON. Exactly. There is reorder costs that go on 

because they are not sure whether what they have got on order is 

coming to them because they don’t have visibility of where it is. It 

is kind of the Amazon.com capability that we lack today in the 

Army. 

Mr. ANDREWS. If this works with teenage girls, let me know because we can try it at our house, too. 

General STEVENSON. It is an area of concern. And I just last 

week had a large meeting with—the RAND Corporation is doing 

some work for us on excess—excess orders we are generating. And 

a lot of it comes from lack of confidence. I talked about the component associated with reconciling records at various levels. And it is 

a combination of all of those things and some others that I can’t 

recall off the top of my head that contribute towards this business 

case that says by 2019 you will have paid for. 

Mr. ANDREWS. Is the $8 billion over what period of time? 

General STEVENSON. Through the life of the system, through 10 

years. 

Mr. ANDREWS. So roughly 10 fiscal years. Let me ask sort of a 

very basic question to each of you from the Services. 

General, if I wanted to know how many radio parts existed for 

a certain airplane today and I needed to find one, how quickly 

could your group find that part and know how many that you had? 

Say we needed that answer ASAP. How quickly could you get the 

answer? 

General FEDDER. Sir, within an hour we could go to the standard 

base supply system, which is our current retail level supply inventory, and identify by stock number where those radio parts—— 

Mr. ANDREWS. And you have a high degree of confidence that 

would be right? 

General FEDDER. Yes, sir. 

Mr. ANDREWS. Good. 

General FEDDER. Yes, sir. 

Mr. ANDREWS. Admiral, what if I wanted to know how many 

cases of water we have on Navy ships at this moment, could we 

know that? 

Admiral ARCHITZEL. I would go to the supply system to get that 

answer. But in terms of what I would tell you—within our aviation 

and logistics environment, our automated logistics environment, 

today in the Naval Supply program—within the naval enterprise, 

we are very able to extract what equipment we have and what 
17 

ECPs are on—sorry—what do we have to have, what the inventory—what parts and pieces we have and need. 

Mr. ANDREWS. Could you get that answer for us pretty quickly? 

Admiral ARCHITZEL. Yes, sir. 

Mr. ANDREWS. High degree of confidence again? 

Admiral ARCHITZEL. I do. Absolutely. 

Mr. ANDREWS. And, General, you and I talked the other day a 

little bit about this. But if we wanted to know how many of those 

clamshells we have in Iraq and the degree of disrepair or repair 

they are in, how quickly could you get that answer? 

General STEVENSON. Sir, the number, easy. In a matter of a 

quick inquiry. The condition, I would have to go ask. And that just 

takes time because—— 

Mr. ANDREWS. So we don’t have a database that exists necessarily about the condition of the assets at all times? 

General STEVENSON. Not when it is in the hands of the user. And 

that is part of our problem. I mentioned the architecture of our current systems. 

Admiral ARCHITZEL. There is another aspect, if I could, sir. It is 

the value of that system, too. So that is part of what we have to 

have for audit readiness. And I think that is a concern we are all 

going to have to come back with. We can do that, but it will be very 

manual intensive. 

Mr. ANDREWS. I really appreciate you saying that, Admiral, because one thing we have learned from our panels of witnesses is 

that there is a real difference here between the quantity of the 

number of things you have and the value of them. And the value 

process is a subjective process, as well as an objective one, which 

means that producing financial statements for the military is a sui 

generis project. I don’t think it is quite like producing financial 

statements for a retail store or a homebuilder because, A, you don’t 

really know the market value of goods because some don’t have a 

market value. And, B, you don’t know their utility because they are 

in far-flung places around the world and what not. So we do appreciate the complexity of the problem. 

I think this has been an excellent panel doing excellent work, 

and I appreciate each of you. Thank you. 

Mr. CONAWAY. Let me ask one other question. I want to make 

sure our witnesses get their money’s worth for the preparation that 

was done. Thank you for whatever it is you guys did to come here 

today and put that together. Leadership is key at every single 

level. Are we far enough along in this process that when your replacements show up and somebody moves into those slots, that the 

forward momentum is such that it is going to happen or what is 

it that you are looking for to make sure this process does get completed when there is a change of leadership? General Mitchell, you 

mentioned the other day you have got enough skin in the game 

that you own some of this, you really want to make it happen. So 

how do each of your organizations make sure that new leadership 

has the same understanding of how important this is and that we 

don’t lose any ground just because we changed the top person? 

General STEVENSON. Sir, I think in our case we have got the design work done and that is really the key, because all we have got 

to do now is implement what we have designed, and I think we 
18 

have irreversible momentum toward that end state. Now, it could 

get interrupted by a lack of resources and certainly we are counting on being able to continue to make the investments we need to 

make. It is fully funded in our program. But, you know as well as 

I do that could get interrupted in any year. But absent that, I 

think we are on a path toward irreversible momentum to get it 

done. 

Admiral ARCHITZEL. Sir, I think it is fundamental to everything 

we do in the military when you look at command structures and 

how we do things. Measure my performance, not where I am in 

NAVAIR today. Come back in a year and tell me how NAVAIR is 

doing and I will tell you how I did in command. So it is a reflection 

of what we instill and what we pass through. This is a team effort. 

It is not one carried by one individual by any means. I don’t have 

the background or the knowledge to do this alone. So we rely on 

everyone. I am absolutely confident that it will be enduring. 

General FEDDER. Mr. Chairman, in the logistics environment at 

the execution level, the continued ability for an airman to make 

sure that inventory is right, that they store it right, that they stock 

it right, all of those are again fundamental parts of what we do in 

logistics. But to capture the momentum that we have going towards ensuring audit readiness, we have included in the Inspector 

General system a special interest item to reconcile what we are 

doing at unit level that is going to drive us to audit readiness. We 

have captured it in our logistics assessment systems, performance 

measures for civil service members, as we talked about a little bit 

earlier, things like policy. 

But I would say in addition to all of those measures, the continued DOD leadership focus on this and certainly the interests and 

involvement of Congress and your panel here to make sure that we 

continue down this path will make a big difference. 

Ms. SMITH. I think it goes back to making sure that the culture 

of the entire organization is focused on the priorities and the strategy, and I think we have done that pretty well in the DFAS world. 

We haven’t finished pushing it all the way down to our lower level 

individuals, but our trainees and our accountants that are coming 

in the door, the first thing that they are trained on is how do we 

get our processes to be better and how do we focus on fixing the 

issues with the systems, and so on and so forth. 

We have tried to change our culture from fixing the problems at 

the top to fixing the problems at the source, all the way down into 

the organization. So that is how we are trying to keep it flowing. 

Mr. CONAWAY. Rob, do you have anything else? 

Mr. ANDREWS. No. Thank you again. I would like to thank the 

witnesses for an excellent presentation. 

Mr. CONAWAY. I give the witnesses an opportunity to say whatever it is that you wanted to say that we didn’t ask or you didn’t 

get it in your opening statement. Anything that anybody wants to 

add for the record? 

Again, thank you very much for being here and the meeting is 

adjourned. Thank you. 

[Whereupon, at 8:55 a.m., the panel was adjourned.] 
A P P E N D I X 

SEPTEMBER 15, 2011 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

SEPTEMBER 15, 2011 

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QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

SEPTEMBER 15, 2011 

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QUESTIONS SUBMITTED BY MR. CONAWAY 

Mr. CONAWAY. Your testimony stated the Army will achieve $8 billion in savings 

through the fielding of the Global Combat Systems Support–Army (GCSS–A) program. Please explain when and how you will realize these savings. 

General STEVENSON. Eight billion dollars is the value of the estimated net benefits from implementing GCSS–Army. Net benefits are the difference between total 

benefits and the cost of developing, implementing and sustaining GCSS–Army between now and 2027. Net benefits include inventory reductions, reparables tracking, 

costs of reorder (acquisition costs), legacy systems operation and upgrades and productivity enhancements. Benefits slowly begin to be accrued in 2013, with a rapid 

increase beginning in 2017 (when legacy systems are shut down) and break even 

in 2019. 

Mr. CONAWAY. In his testimony, Lieutenant General Mitchell Stevenson indicated 

the U.S. Army expects to generate $8 billion in net savings between 2017 and 2027 

with the implementation of the Global Combat Support System–Army (GCSS– 

Army). He noted that the savings come from a number of different locations, such 

as reductions in inventory, re-order costs, and excess orders and increased efficiencies (e.g. eliminating the need to perform reconciliations between stovepipe systems). This situation is not unique to the U.S. Army. What financial benefits/costs 

savings does your Service expect to generate as a result of implementing ERPs? 

Please explain what additional tangible benefits you expect to see as a result of 

using ERPs. 

Admiral ARCHITZEL. The Navy has conducted extensive analysis of realized and 

expected benefits due to the implementation of Navy Enterprise Resource Planning 

(N–ERP). Our analysis has resulted in quantifiable inventory reduction and legacy 

system retirement metrics. In addition to metrics that can currently be quantified 

with a high degree of confidence, the Navy also expects to realize tangible benefits 

from N–ERP in terms of enabling and sustaining cost effective audit readiness 

through improved financial controls by FY 2017. 

Inventory Savings across the FYDP (FY12–17) equal $276M. Savings have been 

documented in PBIS as a Navy Working Capital Fund reduction. Inventory Cost 

Avoidance Post FYDP (FY18–23), defined as costs that would have been incurred, 

but will be avoided as a result of Navy ERP, equal $456M. (See attachment 1 on 

page 60.) 

Legacy System Retirement Savings across the FYDP (FY12–17) equal $350M. 

Savings have been documented in PBIS as a Navy Working Capital Fund Reduction. 

Legacy System Retirement Cost Avoidance across the FYDP (FY12–17), defined as 

costs that would have been incurred, but will be avoided as a result of Navy ERP, 

equal $436M. Legacy System Retirement Cost Avoidance Post FYDP (FY18–23), defined as costs that would have been incurred, but will be avoided as a result of Navy 

ERP, equal $618M. (See attachment 2 on page 61.) 

Total Savings from Inventory Reduction and Legacy System Retirement: $626M 

Total Cost Avoidance from Inventory Reduction and Legacy System Retirement: 

$1,510M Total Savings & Cost Avoidance: $2,136M 
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Mr. CONAWAY. In his testimony, Lieutenant General Mitchell Stevenson indicated 

the U.S. Army expects to generate $8 billion in net savings between 2017 and 2027 

with the implementation of the Global Combat Support System–Army (GCSS– 

Army). He noted that the savings come from a number of different locations, such 

as reductions in inventory, re-order costs, and excess orders and increased efficiencies (e.g. eliminating the need to perform reconciliations between stovepipe systems). This situation is not unique to the U.S. Army. What financial benefits/costs 

savings does your Service expect to generate as a result of implementing ERPs? 

Please explain what additional tangible benefits you expect to see as a result of 

using ERPs. 

General FEDDER. We expect to realize approximately $2.84B in net savings from 

our ERP investments over the period from 2017–2027. Like the Army, savings will 

come from a number of business elements. Savings come from eliminating thousands of system interface requirements and hundreds of system modernization efforts. The Air Force will reduce or eliminate contract support requirements, maintenance costs, and upgrades for hundreds of core legacy systems that are technically 

obsolete, not well integrated, lack necessary internal controls, are costly to operate, 

and drive manual rework and reconciliation. By reducing the amount of time Airmen spend on administrative processes, more time will be available to devote on 

tasks directly supporting the warfighter. 

The AF has three ERPs that are part of our target environment. These are the 

Defense Enterprise Accounting and Management Systems (DEAMS), the Expeditionary Combat Support System (ECSS), and the Air Force Integrated Personnel 

and Pay System (AF–IPPS). DEAMS provides the Air Force with a transactionbased general ledger, which is the foundation for auditable financial statements and 

replaces nine legacy systems. This capability enables accurate and timely financial 

statements, accurate budget forecasting, and enhances our ability to reduce unliquidated obligations and accounts receivable by $1.67B from 2017–2021. ECSS will 

streamline the supply chain management process in the Air Force and is scheduled 

to replace 240 legacy core logistics and financial systems and 564 interfaces with 

an estimated 10-year net benefit of $0.67B. ECSS savings estimates have been revised downwards as a result of current program performance, and may increase 

with successful program implementation. AF–IPPS will serve over 500,000 military 

members via a single, seamless personnel and pay solution for the Air Force’s Active 

Duty, Reserve, and Guard components. AF–IPPS will retire 20 legacy information 

technology platforms, and save more than $0.5B in system operation costs during 

the lifecycle. AF–IPPS will reduce today’s 85,000 annual pay cases by 75% and improve payroll timeliness from 93% to 97%. 

Mr. CONAWAY. As the agency that provides financing and accounting services to 

the Department of Defense, the Department’s transfers to ERPs has a direct impact 

on DFAS and its ability to do its job. 

a) What challenges are DFAS experiencing as a direct result of the Department’s 

transitions to ERPs? 

b) What is DFAS doing to address these challenges? 

c) On the other hand, what benefits/costs savings has DFAS seen and expect to 

see as a result of the ERPs being implemented by the military services? 

Ms. SMITH. a) DFAS is working diligently with the Military Services and Defense 

Agencies to implement the Enterprise Resource Planning (ERP) systems. Full software maturity is an evolutionary process and the ERP ‘‘out-of-the-box functionality’’ 

in many cases does not include the full operational capability of the legacy systems 

being replaced. Legacy systems matured over decades to reach full operational capacity. Similarly, incremental product enhancements are needed within the ERP environment to reach full capability. As one of many users of the ERP systems, DFAS 

is operating within risk tradeoff decisions that the ERP functional sponsors and Programs Managers (PM) must make regarding cost, schedule, and performance. When 

performance risk is accepted for cost and schedule priorities, operational users experience ERP implementations that do not effectively meet mission needs or are easily 

integrated into current operational business practices. ERP systems can also inadvertently reinforce the organizational status quo, rather than contribute to significant organizational change when implemented due to cost, schedule, and scope constraints. Finally, regardless of the amount of planning, testing, and Business Process Reengineering (BPR), challenges are not always realized and correctable until 

the system is in production. Coupled with the risk tradeoffs are the challenges of 

both complexity and size of the DOD. The DOD involves complex functions to execute its mission, creating a vast scope to deliver full operational capability. DFAS 

challenges arise when not all mission essential capabilities of the legacy systems are 

included by the ERP at implementation, thereby requiring the sustainment of legacy 
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systems concurrently with ERPs. Another contributing factor is that FM requirements are only one of the ERP capabilities and priorities being implemented. There 

are many sets of requirements competing for priority: Human Resources, Acquisition, Real Property, Logistics, Personnel & Readiness, and FM. When FM requirements are not met, system capability gaps exist. To address these gaps, DFAS utilizes manual workarounds or other interim processes pending the identification, 

prioritization, and implementation of the needed FM requirements. 

b) To tackle these challenges, DFAS continues to create better ways to conduct 

business and improve the efficiency and effectiveness of ERPs. DFAS is identifying 

essential information required for the successful integration of the ERP systems into 

the DFAS mission during and post-implementation of ERP systems. For each system implementation, DFAS is coordinating, collaborating, and integrating with the 

ERP Program offices to identify, and prioritize functions and processes to increase 

the efficiency of the ERPs. DFAS advocates end-to-end testing (E2E) methodology 

to ensure system interoperability, verifying the overall process is integrated and 

flows correctly throughout the systems. In ERP post-implementation environments, 

Joint Solutions Teams (JSTs) are established to create and manage a centrally 

maintained database of DFAS ERP post-implementation issues and lessons learned, 

with a goal to develop shared solutions to common problems. The intent is to also 

define and articulate DFAS’ priorities for future system development and to concentrate on resolving issues that will provide the largest return for DFAS and its 

customers. Common DFAS issues identified across an application (e.g., SAP, ORACLE, etc.) can also be elevated directly to ERP software vendors to elicit a vendorbased solution, such as the current 3 percent income tax withholding mandate. In 

addition, there are also post-implementation opportunities to optimize the ERP systems to both maximize inherent system capabilities and facilitate process improvements. DFAS is focusing on ERP optimization to perform BPR, implement incremental product enhancements to the ERP systems, and leverage additional features 

within the applications to enable business transformation. This effort goes hand in 

hand with the culture of process improvement embedded within DFAS. ERP systems are very complicated software packages that support entire organizational activities, and DFAS is working in collaboration with our customers to address these 

system challenges and move forward. 

c) To date, the benefits that DFAS has seen include increased and strengthened 

internal controls, improved business practices, and increased reliability of financial 

data. The ERPs have standardized and streamlined our business processes, provided 

a single source for financial management information, and increased transparency 

and accuracy of transaction level data allowing for more timely and better decision 

making. Through these implementations, DFAS, in partnership with our customers, 

has made progress towards changing our systems, processes, and workforce to move 

us closer to improving financial management practices across DOD and achieving 

audit readiness. As ERPs continue to be fielded, we expect to achieve the benefits 

of integrating business applications and functions to provide consistent, single 

source data which can be traced and validated from the beginning of the transaction 

entry to the financial statements. Other benefits include more efficient and streamlined business processes, increased compliance with the Federal Financial Management Improvement Act (FFMIA including uniform use of the United States Standard General Ledger (USSGL), and implementation of Standard Financial Information Structure (SFIS) a common business language to support information and data 

requirements for budgeting, financial accounting, cost/performance management, 

and external reporting across the DOD enterprise. ERPs provide more efficient data 

collection capabilities and an infrastructure to support more timely responses to 

auditor’s data requests, and standardized financial reporting across DOD, thereby 

reducing the cost of auditability. In the future years, we expect to realize cost savings from legacy system retirements. DFAS, in conjunction with our customers, will 

continue to embrace the challenges and opportunities that exist with implementing 

new systems and maximize the benefits derived in order to reach the goal of financial improvement and auditability. 

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