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77–485 PDF 2012

S. HRG. 112–658 

FINANCIAL MANAGEMENT AND BUSINESS TRANSFORMATION AT THE DEPARTMENT OF DEFENSE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON READINESS AND MANAGEMENT 

SUPPORT 

OF THE

COMMITTEE ON ARMED SERVICES 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

APRIL 18, 2012 

Printed for the use of the Committee on Armed Services 

( 

Available via the World Wide Web: http://www.fdsys.gov/ 

COMMITTEE ON ARMED SERVICES 

CARL LEVIN, Michigan, Chairman 

JOSEPH I. LIEBERMAN, Connecticut 

JACK REED, Rhode Island 

DANIEL K. AKAKA, Hawaii 

E. BENJAMIN NELSON, Nebraska 

JIM WEBB, Virginia 

CLAIRE MCCASKILL, Missouri 

MARK UDALL, Colorado 

KAY R. HAGAN, North Carolina 

MARK BEGICH, Alaska 

JOE MANCHIN III, West Virginia 

JEANNE SHAHEEN, New Hampshire 

KIRSTEN E. GILLIBRAND, New York 

RICHARD BLUMENTHAL, Connecticut 

JOHN MCCAIN, Arizona 

JAMES M. INHOFE, Oklahoma 

JEFF SESSIONS, Alabama 

SAXBY CHAMBLISS, Georgia 

ROGER F. WICKER, Mississippi 

SCOTT P. BROWN, Massachusetts 

ROB PORTMAN, Ohio 

KELLY AYOTTE, New Hampshire 

SUSAN M. COLLINS, Maine 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

DAVID VITTER, Louisiana 

RICHARD D. DEBOBES, Staff Director 

ANN E. SAUER, Minority Staff Director 

SUBCOMMITTEE ON READINESS AND MANAGEMENT SUPPORT

CLAIRE McCASKILL, Missouri, Chairman 

DANIEL K. AKAKA, Hawaii 

E. BENJAMIN NELSON, Nebraska 

JIM WEBB, Virginia 

MARK UDALL, Colorado 

MARK BEGICH, Alaska 

JOE MANCHIN III, West Virginia 

JEANNE SHAHEEN, New Hampshire 

KELLY AYOTTE, New Hampshire 

JAMES M. INHOFE, Oklahoma 

SAXBY CHAMBLISS, Georgia 

ROB PORTMAN, Ohio 

SUSAN M. COLLINS, Maine 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

(II) 

C O N T E N T S 

CHRONOLOGICAL LIST OF WITNESSES 

FINANCIAL MANAGEMENT AND BUSINESS TRANSFORMATION AT THE DEPARTMENT OF

DEFENSE

APRIL 18, 2012

Page 

Hale, Hon. Robert F., Under Secretary of Defense (Comptroller) ....................... 6 

McGrath, Hon. Elizabeth A., Deputy Chief Management Officer, Department 

of Defense ............................................................................................................. 7 

Westphal, Hon. Joseph W., Chief Management Officer of the Army; Accompanied by Hon. Mary Sally Matiella, Assistant Secretary of the Army, 

Financial Management and Comptroller ........................................................... 15 

Work, Hon. Robert O., Chief Management Officer of the Navy; Accompanied 

by Hon. Gladys J. Commons, Assistant Secretary of the Navy, Financial 

Management and Comptroller ............................................................................ 19 

Morin, Hon. Jamie M., Assistant Secretary of the Air Force, Financial Management and Comptroller; Accompanied by David Tillotson III, Deputy 

Chief Management Officer of the Air Force ....................................................... 22 

Khan, Asif A., Director, Financial Management and Assurance, Government 

Accountability Office ............................................................................................ 29 

(III) 

(1) 

FINANCIAL MANAGEMENT AND BUSINESS 

TRANSFORMATION AT THE DEPARTMENT 

OF DEFENSE 

WEDNESDAY, APRIL 18, 2012 

U.S. SENATE,

SUBCOMMITTEE ON READINESS AND

MANAGEMENT SUPPORT, 

COMMITTEE ON ARMED SERVICES, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 2:35 p.m. in room 

SD–G50, Dirksen Senate Office Building, Senator Claire McCaskill 

(chairman of the subcommittee) presiding. 

Committee members present: Senators McCaskill, Manchin, and 

Ayotte. 

Majority staff members present: Peter K. Levine, general counsel; and Jason W. Maroney, counsel. 

Minority staff members present: Pablo E. Carrillo, minority general counsel; Lucian L. Niemeyer, professional staff member; and 

Bryan D. Parker, minority investigative counsel. 

Staff assistants present: Jennifer R. Knowles, Kathleen A. 

Kulenkampff, and Mariah K. McNamara. 

Committee members’ assistants present: Stephen Hedger, assistant to Senator McCaskill; Mara Boggs, assistant to Senator 

Manchin; and Brad Bowman, assistant to Senator Ayotte. 

OPENING STATEMENT OF SENATOR CLAIRE MCCASKILL, 

CHAIRMAN 

Senator MCCASKILL. The Senate Armed Services Committee Subcommittee on Readiness and Management Support will begin this 

hearing. 

This is a hearing that we do on an annual basis. Some have likened it to going to the dentist and having your teeth drilled. As I 

said to the staff as I walked in, this is the kind of hearing that people who love wonky should really gravitate towards, because this 

is a subject matter that clearly is complicated, and difficult, and in 

some ways tedious, but it is obviously going to take a great deal 

of tenacity, which I know our military is capable of, in terms of getting this right. This is our annual effort to look at the financial 

management and business transformation at the Department of 

Defense (DOD). 

We are pleased to be joined by the Comptroller today—and I appreciate that—the DOD Deputy Chief Management Officer (CMO), 

and the CMOs and Chief Financial Officers (CFO) of all three miliVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6602 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
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tary departments—I think we have one missing because of an injury, but we understand that—and the Director of Financial Management and Assurance at the Government Accountability Office 

(GAO). 

This witness list makes for a long witness table. In fact, we had 

to change rooms to accommodate all of you. However, with both the 

CMOs and the CFOs present, we have the full range of senior officials responsible for DOD financial management and business 

transformation before us at one time. This would not have been 

possible as recently as 5 years ago because DOD was unable to tell 

us who the responsible officials were. 

I am particularly pleased by the presence of the Service Under 

Secretaries today, which reflects both their personal commitment to 

the issues of financial management and business transformation, 

and the positive impact that our legislation establishing them as 

the CMOs of their departments has already begun to show. 

Welcome to all of you and thank you for your participation in 

this important hearing. 

Last October, the Secretary of Defense announced that he had directed DOD to accelerate its schedule to achieve audit readiness for 

its Statement of Budgetary Resources (SBR), moving the deadline 

from fiscal year 2017 to fiscal year 2014. Secretary Panetta stated 

that ‘‘we owe it to the taxpayers to be transparent and accountable 

for how we spend their dollars’’ and acknowledged that this will require DOD to change the way it does business. I could not agree 

with him more. 

It will not be easy for DOD to meet the 2014 deadline. Even as 

the military departments have accelerated milestones for future 

years in an effort to meet the new requirement, DOD’s most recent 

update on its Financial Improvement and Audit Readiness (FIAR) 

plan indicates that it has fallen behind on a number of milestones 

that were supposed to be achieved this year. 

In the past, DOD has relied heavily on the fielding of Enterprise 

Resource Programs (ERP) to achieve auditability. This approach 

has always been problematic both because of DOD’s dismal track 

record in fielding new business systems, and because new business 

systems alone will never solve the financial management problems 

without accompanying changes to business processes, internal controls, and culture. 

The 2014 deadline makes it difficult, if not impossible, for DOD 

to continue to rely on ERPs to solve its management problems. 

Senior Air Force officials have already acknowledged that they will 

not be able to rely on ERPs to meet the 2014 deadline since the 

three Air Force ERPs are not scheduled to be fully deployed until 

2016 and 2017. The Army and Navy plan to field their core financial ERPs in 2012 and 2013—but other critical Army and Navy systems, including the Integrated Pay and Personnel System (IPPS)- 

Army, Global Combat Support System (GCSS)-Army, IPPS-Navy, 

and GCSS-Marine Corps—are not scheduled to be fully deployed 

until 2017 or do not yet even have deployment dates established. 

DOD’s inability to rely on ERPs as a cure-all for its financial 

management problems could result in lasting improvements if DOD 

seizes this opportunity to refocus its attention on needed changes 

to underlying business processes and internal controls. If DOD conVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6602 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
3 

ducts end-to-end analyses of its business processes, identifies needed internal controls, and makes the cultural and process changes 

required to implement those controls, it should be able to make 

real progress towards sound financial management even before the 

fielding of new ERPs. 

If, on the other hand, it relies on one-time fixes and manual 

work-arounds in an effort to meet the 2014 deadline, it could spend 

significant amounts of money without addressing the underlying financial management problems. Even worse, if DOD pushes for 

audit reviews before its systems and processes are ready, it could 

spend huge sums to hire an army of auditors without moving any 

closer to a long-term solution. 

I hope we will hear a commitment from our witnesses today to 

focus on needed changes to DOD’s business systems and culture 

and to avoid a short-term fix that could delay rather than expedite 

the real objective of developing timely, accurate data on which 

sound management decisions can be based. 

If we fail to address this issue, DOD will remain at risk of sending the wrong paychecks to soldiers in the field, wasting taxpayers’ 

money on improper payments and overdue bills, being unable to account for billions of dollars in funding, and making critical management decisions on the basis of unsupportable financial information. 

Sound business processes and good data are critical to our efforts 

to provide efficient management, save money, and ensure accountability at DOD. We simply have to do better. 

I now will turn it over to Senator Ayotte for a statement, if she 

would like to make any opening remarks. 

STATEMENT OF SENATOR KELLY AYOTTE 

Senator AYOTTE. Thank you very much, Madam Chair. 

I want to welcome our witnesses for being here today and thank 

them for their hard work. 

This is our annual hearing on the defense financial management 

and business transformation in as many years, and I commend 

you. I want to commend the chairman for continuing to make better financial stewardship at DOD a significant and major priority 

for this important subcommittee. 

Today’s hearing drives at the heart of the fiscal crisis we face as 

a Nation: how the Federal Government spends taxpayers’ dollars. 

We must closely scrutinize spending at every Federal agency, including DOD, to identify and eliminate waste and duplication. 

However, as I have said in the past, we must ensure that budget 

cuts at DOD do not undercut our warfighters or endanger our readiness for future contingencies. To distinguish between necessary 

budget cuts and cuts that would harm our troops and damage military readiness, we must have reliable financial data and effective 

business processes and systems. Every wasted dollar is a dollar we 

deprive our warfighters of as they seek to protect and defend our 

country. 

A recent finding by GAO illustrates how important it is to reform 

financial management at DOD and how DOD does business. According to the GAO report released just last month, the total acquisition costs of DOD’s 96 largest weapons procurement programs 

grew by over $74 billion, or 5 percent, just over last year’s 

4 

amounts. In the midst of our Nation’s fiscal crisis and tightening 

defense budgets, we can—and must—do better. 

One specific area of financial management that should be reformed relates to the proliferation of requests to transfer funds 

among defense accounts. I appreciate that DOD needs the budgetary flexibility to respond to emergent, higher-priority needs for 

our warfighters engaged in hostilities. But we have been seeing a 

migration of funds for new, unauthorized programs not tied to the 

war and a frenzy in the last 30 days of the fiscal year to spend taxpayers’ funds before they expire, regardless of the urgency of the 

requirements that the money is being spent on. Neither of these 

trends are conducive to a healthy, transparent financial management system and must be addressed in an era of declining defense 

budgets. 

To his credit, shortly after taking office, Secretary Panetta elevated financial management at DOD to make it a priority. Secretary Panetta directed DOD to cut in half the time it would take 

to achieve audit readiness of a key financial statement, the SBR. 

I fully support this goal which would achieve an audit-ready SBR 

by 2014. 

In fact, I introduced legislation last year that would have required by statute that DOD meet this goal. That is how important 

I think it is. My proposal passed the Senate Armed Services Committee and the Senate unanimously but was, unfortunately, not included in the final conference report. I hope we can revisit this important priority this year in the National Defense Authorization 

Act (NDAA), and I certainly plan to bring this forward. 

From our witnesses, I would like to hear their assessments of 

whether each of the Services is on track to meet the 2014 goal. I 

am particularly interested in getting an update on the Air Force’s 

progress on this because we know that the Air Force has had some 

difficulty on this particular aspect of meeting the audit readiness 

goal of 2014 for the SBR. 

I am also interested in hearing about DOD’s efforts to ensure 

that steps being taken now to achieve auditability will be repeatable in future years. Spending billions of dollars for a one-time effort to achieve auditability that cannot be used in the future makes 

absolutely no sense. We want to be able to use this information 

year-to-year and make it valuable for you. Such a short-sighted approach would waste billions of dollars and not solve DOD’s longerterm financial issues. 

While much work remains to achieve the ultimate goal of full 

audit readiness for 2017, DOD has achieved some encouraging 

progress, and I want to commend you for that. Notably, some of 

DOD components, including the Army Corps of Engineers, have received clean audit opinions. By contrast, the Marine Corps received 

a qualified audit opinion of its SBR from the DOD Inspector General (IG). It is imperative that those DOD components work toward 

clean opinions like the Marine Corps. We would like to see, of 

course, across the Services, that we leverage the lessons learned 

from other organizations within DOD that have succeeded to make 

sure that every branch succeeds. 

In testimony before Congress over the last few months, the DOD 

IG has maintained that three problem areas must be resolved beVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
5 

fore DOD will be able to meet its audit readiness goals in 2014 and 

in 2017. They include: the quality of DOD’s financial management 

data, weaknesses within its internal controls, and implementation 

of its ERPs. I agree with the DOD IG’s overall observation and 

would certainly like our witnesses to address each of these areas. 

One area I would like to focus on is the DOD’s procurement of 

ERP systems, automated systems that, as the chair has described, 

perform a variety of important business-related functions crucial to 

meeting the goal of audit readiness. Both GAO and the DOD IG 

have repeatedly reported that these new systems, some of which 

cost billions of dollars to develop and deploy, lack elements that are 

critical to producing auditable financial statements such as a 

standard set of accounts that match the United States standard 

general ledger. This requires manual work-arounds which increases the risk of human error and further degrades the quality 

of DOD’s financial management data. 

DOD must successfully reengineer its inefficient business processes and implement these ERPs in a way that allows it to realize 

their intended benefits. Otherwise, it will do little else than line 

the pockets of the contractors hired to integrate these ERPs into 

DOD and will not reach our goal of achieving audit readiness. 

With a $1.3 trillion deficit this year, we cannot accept the status 

quo with respect to DOD or anywhere in our Federal Government. 

With at least $487 billion and up to a trillion in defense reductions 

being looked at by this committee and by Congress and perhaps 

implemented over the next decade, we cannot afford to do without 

the reliable financial management data needed to help us distinguish between defense budget cuts that are necessary and those 

that may endanger our national security. 

Madam Chair, clearly there is much to discuss today, and so I 

thank you so much for convening this hearing. Again, I want to 

thank the witnesses for being here. 

Senator MCCASKILL. Senator Manchin, would you like to make a 

comment? 

Senator MANCHIN. I am ready for the witnesses. 

Senator MCCASKILL. Great. Let me go through the list of witnesses and then I will defer to each of you to decide who wants to 

testify on behalf of each Service. I certainly would want to start 

with Robert F. Hale, the Under Secretary of Defense, Comptroller. 

But we have here today from the Air Force, Mr. David Tillotson III, 

who is the Deputy CMO of the Air Force, and the Honorable Jamie 

M. Morin who is Assistant Secretary of the Air Force of Financial 

Management and Comptroller. We have from the Army, the Honorable Mary Sally Matiella, Assistant Secretary of the Army, along 

with the Honorable Joseph W. Westphal, the CMO for the Army. 

We have Elizabeth A. McGrath who is the Deputy CMO at DOD. 

From the Navy, we have the Honorable Robert O. Work, the CMO 

of the Navy, along with the Honorable Gladys J. Commons, the Assistant Secretary of the Navy. From GAO, all by himself, we have 

Mr. Asif A. Khan, the Director of Financial Management and Assurance for GAO. 

I thank you all for being here, and I will defer to you, Secretary 

Hale, to begin this process and then to defer to your colleagues in 

6 

whatever order you think is appropriate for us to move through the 

various branches for their testimony. 

STATEMENT OF HON. ROBERT F. HALE, UNDER SECRETARY 

OF DEFENSE (COMPTROLLER) 

Mr. HALE. Chairman McCaskill, Senator Ayotte, Senator 

Manchin, members of the subcommittee, let me thank you for the 

opportunity to talk about improvements in defense financial management, in particular audit readiness. Let me say at the outset 

this issue is important to me. If that makes me a wonk, well then, 

so be it. It is something we need to do. I know that and I think 

everybody at this table agrees. 

Ms. McGrath and I have submitted a joint statement and we will 

now summarize it jointly for you. 

It has been 8 months since our last status report. In that time, 

we have continued efforts across DOD. The job is not done, I think 

GAO’s report makes that clear. But I believe we are on the right 

track. I think we are making progress and at a faster rate, and I 

am reasonably confident that we will meet our goals. 

This audit effort is important for two reasons. First, we need a 

clean audit to ensure that managers have accurate financial information to make these important decisions. But second—and I think 

the most important thing—we need to reassure the public and Congress that we are good stewards of the public funds. 

Today we can account for funds appropriated to us but not to an 

auditable standard. To reach that goal, more than 2 years ago, we 

put in place a new focused strategy. The strategy concentrates first 

on the information that defense managers most use to manage 

budgetary information and accounts and determine location of assets. That strategy has been endorsed by GAO. It is supported, I 

believe, at all levels of DOD. 

We also have in place a governance structure and you have before you today many of the senior leaders who provide that governance. Despite lean budget times, we have put aside adequate funds 

to meet audit needs throughout our 5-year budget planning period. 

Now we need to execute. We have to carry out that strategy, and 

I think it is happening. 

Let me highlight a few of our accomplishments over the last 

year. I will focus on DOD-wide accomplishments because I want to 

leave to my Service colleagues the many activities that they have 

undertaken. 

The key event in the last year was clearly Secretary Panetta’s 

personal endorsement of the audit effort. At that time, he accelerated to 2014 our goal for the SBR for general funds. His endorsement has been a game-changer. It has opened doors I never expected to be opened, and we need to find ways to leverage that endorsement in every way we can. I brief him periodically at his staff 

meetings, and although a lot of things, from Syria to North Korea 

are on his mind, he always focuses when I bring up this topic. 

As more field level managers become involved, we are moving to 

tell them what needs to be accomplished. The Services have already done a lot. They are in the process of sending out now a 

checklist to all our commanders that lists the basic actions that 

they need to take. 

7 

We are also developing a course-based certification program for 

defense financial management professionals. One of the goals of 

that is to improve audit training. Since our program was last announced, we have made a fair amount of progress. We will have pilots out this year, large-scale implementation next year. We are 

grateful to Congress for providing the legislative authority that we 

needed in the NDAA for Fiscal Year 2012. 

We have also introduced a specific training program in audit 

readiness and more than 1,000 DOD personnel took that program 

last year. 

We are working to ensure that the defense agencies have effective programs leading to auditability of their SBRs. These agencies 

account for almost 20 percent of our budget. We will never be 

audit-ready without them, and so we need to bring them along with 

the military departments. 

We have also worked to ensure that the agencies that provide 

needed services are pursuing audit efforts. The Defense Finance 

and Accounting Service (DFAS) is particularly important, but the 

list of key service providers includes the Defense Logistics Agency, 

the Defense Contract Management Agency (DCMA), the Defense 

Contract Audit Agency (DCAA), and others. 

We are partnering with other key functional areas. Here is one 

case where Secretary Panetta’s endorsement has helped a lot to get 

other senior personnel involved. Our human resources personnel, 

for example, are working to help us solve audit issues in their 

areas, including some of those highlighted by GAO in their recent 

audit of Army military personnel. 

The efforts are bearing fruit. You mentioned some audits that we 

have already achieved. The Army Corps of Engineers, DFAS, the 

Defense Commissary Agency (DeCA), the DCAA, all have audit 

opinions. The Defense Information Systems Agency recently 

achieved a clean opinion on $6.6 billion of their working capital 

funds. The TRICARE Management Activity received an unqualified 

opinion on last year’s statements. 

There have also been many key Service-specific initiatives, and 

I want to leave them to my colleagues. 

To achieve and sustain financial management improvement, we 

have to change our business practices. We are with you there and 

we are doing it. But we need better financial systems as well, especially to sustain this effort at a reasonable price. 

So let me now ask Beth McGrath, the DOD’s Deputy CMO, to 

complete our joint oral statement by describing our system efforts. 

STATEMENT OF HON. ELIZABETH A. MCGRATH, DEPUTY CHIEF 

MANAGEMENT OFFICER, DEPARTMENT OF DEFENSE 

Ms. MCGRATH. Thank you. 

Like Mr. Hale, I appreciate your personal engagement in, and 

oversight of, these important issues. 

Like the private sector, DOD is focused on smarter, leaner, 

knowledge-based management and optimization of both processes 

and technology. Our efforts to improve financial management and 

achieve auditability are part of this broader effort to improve our 

business operations and deliver maximum value to the warfighter 

and the taxpayers. 

8 

Since we last testified before this panel in July of last year, we 

have taken a number of steps to improve our overarching business 

environment. Our strategic management plan reflects business initiatives, including audits, each with specific goals, metrics, and 

milestones so that progress may be tracked. To enable the successful execution of these initiatives, we have developed a map which 

highlights interdependencies among them. 

Additionally, we continue to evolve the business enterprise architecture by further defining across functional and end processes, 

adding additional standards that enable interoperability, and improve usability. 

With regard to systems, we acknowledge that there have been 

and continue to be challenges with many of our business system 

implementations. However, to improve business operations, we 

must transition away from labor-intensive, paper-based, siloed 

processes to more streamlined technology-enabled approaches. 

In that regard, I wish to highlight a number of ongoing efforts. 

Our streamlined approach to acquisition of business information 

technology continues to be implemented across DOD. We are implementing and have implemented better and more performance-based 

measures that monitor system development and implementation 

progress. 

We continue to emphasize business process reengineering for 

every business system that is seen before the Defense Business 

Systems Management Committee. We have greater connectivity to 

the overarching information technology (IT) infrastructure that enables the most efficient and secure execution of DOD’s IT missions. 

We have also employed tighter controls on spending, that both 

limit the government’s liability on poor-performing programs and 

also enable IT rationalization through portfolio-based analysis. To 

that end, we appreciate the inclusion of section 901 of the 2012 

NDAA, enabling integrated governance for our entire portfolio of 

business systems for a single investment review board. 

In summary, DOD continues to pursue and adopt a missionfocused, outcome-driven business management culture of continuous change and improvement. 

We look forward to your questions. 

[The joint prepared statement of Mr. Hale and Ms. McGrath follows:] 

JOINT PREPARED STATEMENT BY HON. ROBERT F. HALE AND HON. ELIZABETH A. 

MCGRATH

Chairman McCaskill, Senator Ayotte, and members of the subcommittee, thank 

you for the opportunity to provide you with an update on our efforts for improving 

financial operations at the Department of Defense (DOD). 

It has been approximately 8 months since our last status report to this subcommittee. In that time, we have continued to solidify plans and to make progress 

in financial management across the entire Defense organization. The job is not yet 

done, and there are still major challenges that we face, as highlighted in recent Government Accountability Office (GAO) reports, but we are confident that we are on 

the right track. 

There are two critical reasons for striving to make DOD as efficient and effective 

as possible. One is to ensure that America’s service men and women have everything they need to defend the United States and its interests around the world. The 

other reason is to satisfy our duty as stewards of the resources entrusted to us by 

the taxpayers. 

9 

Today, DOD is able to account for the funds that are appropriated for its use by 

Congress, but—unlike most other government agencies—we cannot yet account for 

those funds to an auditable standard. The explanation has much to do with the 

unique size and mission of DOD and its elements. Moreover, until fairly recently, 

there has been neither sustained attention nor a DOD-wide plan that could be implemented. Today we have both and are moving forward, as you should expect. As 

the people’s elected representatives, you are entitled to know that DOD strives to 

meet the same exacting standards for financial management as other major government organizations. 

SETTING THE FOUNDATION

Achieving this important objective at DOD is no routine task. It requires an enterprise-wide response and an effective strategy. Initially, DOD’s approach varied by 

Military Service and often concentrated on improving the kind of information that 

is helpful in managing a private sector company—that is, the ‘‘book value’’ of assets. 

In fact, this sort of information is of very limited value in meeting the daily informational needs of DOD managers. As a result, in August 2009, we revised our audit 

strategy to focus on the financial information that is actually needed by Defense 

managers. It puts priority on: (1) improving the quality, accuracy, and reliability of 

budgetary information; and (2) confirming the numbers and locations of assets. 

This change has been endorsed by the Government Accountability Office, among 

others, and it has led to improved buy-in at all levels in the Department. Managers 

at DOD now see that audit readiness has day-to-day implications for their work. To 

ensure the adoption of a consistent approach to auditability, we have issued clear 

guidance indicating how to assess and improve processes and controls and how to 

maintain needed documentation. 

As appreciation for the value of auditability has spread throughout our organization, there is recognition that it requires an investment in resources. Despite leaner 

budgets, the Department now plans to sustain the required level of resources each 

year over the next 5 years to improve business operations—providing the appropriate levels of training, tools and support—that will allow us to achieve and sustain 

auditable financial statements. 

In addition, we have a governance structure in place that is keeping the attention 

of senior leaders focused on business and financial management improvement. We 

recognize that our governance process needs to focus more on specific progress and 

must hold individuals accountable for that progress. Each of the Defense components is committed to specific outcomes for their respective plans, and we are requiring the same of service providers who support auditability. Those goals will be 

used to hold executives accountable at all levels. We will continue to use outside 

auditors to verify progress. Leveraging this senior leadership commitment will 

strengthen our current governance process and ensure both accountability and longterm continuity. 

MAJOR ACCOMPLISHMENTS DURING THE PAST YEAR

Secretary Panetta’s direct engagement on this issue has been one of the most significant developments of the past year. In October, he issued a directive stating that 

the achievement of auditable financial statements ‘‘is a priority for me and will be 

an ‘all hands’ effort across the Department.’’ Even more important, he has made it 

clear that the current lack of auditable statements is unacceptable. 

Last fall—in his first appearance before the House Armed Services Committee— 

Secretary Panetta also directed the Department to accelerate the time needed to 

achieve audit readiness for the Statement of Budgetary Resources for general funds 

so that ‘‘by 2014 we will have the ability to conduct a full-budget audit.’’ He added, 

‘‘I’ve directed the DOD Comptroller to revise the current plan within 60 days to 

meet these new goals and still achieve the requirement of overall audit readiness 

by 2017.’’ 

This leadership commitment from the highest level of DOD is setting the tone and 

accelerating audit readiness of the Statement of Budgetary Resources. Plans to significantly accelerate our efforts have been developed and are underway. Auditability 

is now a goal that every commander, every manager, and every functional specialist 

must understand and embrace to improve efficiency and accountability within DOD. 

Following the Secretary’s lead, the Service Secretaries and Chiefs of Staff of the 

Military Services have committed themselves to specific near-term goals in support 

of their plans for achieving auditable financial statements. Their commitment is 

mirrored in major commands. 

For example, General Gary North, Commander of Pacific Air Forces (PACAF), 

said it well in a memorandum to his command in March. He wrote, ‘‘The Air Force’s 

10 

ability to undergo and obtain a clean audit opinion of our financial statements is 

a direct reflection of how well we manage the entire Air Force.’’ He added, ‘‘PACAF/ 

Financial Management will take the lead and develop Audit Readiness Working 

Groups within PACAF with the objective of developing internal and management 

control programs to assist the base level functional areas achieve audit readiness.’’ 

In September, the Commander of Naval Air Systems included a similar message 

among his Commander’s Intents. Key actions include the need to ‘‘standardize financial processes in accordance with the Navy’s Financial Improvement Program to 

provide accurate and auditable information that supports program execution decisions.’’ 

Secretary Panetta and Deputy Secretary Carter have reviewed these and similar 

commitments across DOD and are holding senior leaders accountable—both civilian 

and military—for progress against those plans. In addition, Senior Executives in 

every area now have audit goals in their individual performance plans and annual 

evaluations, and we are working to include these goals in General and Flag Officer 

performance plans as well. This helps to ensure that everyone under their leadership will understand that better control over financial resources has a significant 

effect on mission success and that everyone has a role to play in this process. 

We are working very hard to fulfill the Secretary’s pledge. We are reasonably confident that we can meet his expectations and yours. 

PROVIDING NEW TOOLS AND TRAINING TO THE FIELD

The Military Departments and Defense Agencies have the lead in reaching 

auditability, and they are all taking action to make that happen. Their senior representatives are with us today, and we won’t repeat their individual messages. 

We are also taking proactive steps DOD-wide. For example, we are providing our 

commanders with an Audit Readiness Checklist which is providing Defense managers with a tool akin to the operational readiness checklists employed by military 

commanders. It provides leaders with a definitive list of questions to help ensure 

that their organizations have the records needed for sound resource decisions and 

to make certain that the Department has the records to succeed in coming audits. 

The checklist provides commanders with the basic actions an organization should 

take to determine whether they are audit-ready and to identify areas for improvement, if needed. 

The checklist also helps commanders to assess the efficiency of their organizations 

and to validate how well each function performs. For example, current evidence 

shows widespread weakness in providing support for our cost information. We understand that unless we can prove the soundness of our financial decisions, funding 

could be at risk. The checklist provides actions a Defense organization can use to 

prove that its financial information is accurate. With each command giving the management of money the same attention it gives to other important assets, the Department can achieve Secretary Panetta’s audit readiness goal. Our current culture already values operational or mission readiness. We need a similar view of our business readiness—one that highlights efficiency and resource stewardship—in every 

field organization. 

Another important DOD-wide development is the progress we have made in instituting a course-based certification program for Defense financial management professionals. We announced our plans last year, having in mind a certification program similar to the one in the Defense acquisition community. Since our announcement, we have developed a framework for the program and carried out the many 

steps necessary to bring it to reality. We intend to introduce pilot versions of the 

program for several components this year, with large-scale implementation beginning next year. 

We have support for the program across the Department, and Congress has indicated its support by providing the necessary legal authority in the National Defense 

Authorization Act for Fiscal Year 2012. We thank you for this sign of approval and 

encouragement. 

We also have made significant progress in training both financial managers and 

nonfinancial managers on the importance of audit readiness. We are reinforcing 

these lessons through a partnership with private sector auditors who are experienced in financial audits. We are using examination engagements that are an integral part of our audit readiness methodology to familiarize DOD personnel with the 

requirements for audits. These examinations are essentially small-scale or ‘‘mock’’ 

audits of single business processes. The audit firms performing these engagements 

employ the same procedures used in an actual audit, but on a smaller scope and 

scale. These exercises provide our employees with experience that is otherwise difficult to gain. 

11 

In addition, the DOD Financial Improvement and Audit Readiness (FIAR) Directorate has developed a series of professional development training courses designed 

to enhance Department-wide knowledge and understanding of goals and priorities, 

as well as instructions to become audit-ready and to reinforce the Department’s internal control over financial reporting requirements. In fiscal year 2011, nearly 

1,000 DOD personnel received this training. Additional professional development 

courses have been added since, including ‘‘FIAR 100’’ which focuses on training 

DOD senior leaders, enabling them to understand the impact of operations on financial management and audit readiness, as well as to identify initiatives they can undertake to assist the Department with its auditability objectives. 

MAKING PROGRESS

All of these efforts have contributed to sustaining positive audit opinions as well 

as breaking new ground since we last spoke with this committee: 

• The Defense Information Systems Agency (DISA) achieved a clean opinion on their $6.6 billion working capital fund operations for fiscal year 

2011, and they are moving forward with an audit of their fiscal year 2012 

general fund business. 

• Contract Resource Management of the Tricare Management Activity received an unqualified opinion on its fiscal year 2011 financial statements. 

• The Medicare-Eligible Retiree Health Care Fund received a qualified 

opinion on its fiscal year 2011 financial statement. 

• In November 2011, an examination of five business processes at the initial General Fund Enterprise Business Systems (GFEBS) Wave 1 sites rendered a qualified opinion, establishing a benchmark for expanding the 

Army’s audit readiness program. 

• In November 2011, a commercial audit examination validated that the 

Air Force could successfully balance their Treasury funds at the transaction 

level. 

• In January 2012, an examination validated Navy’s existence and completeness audit readiness assertion for ships and submarines, Trident missiles, and satellites. 

The U.S. Marine Corps will be the first Military Service to receive an audit opinion on a financial statement, which will be a significant step not only for the marines, but for the entire Department. While the Marine Corps will not receive an 

opinion on the fiscal year 2011 Statement of Budgetary Resources, the significant 

progress made to date has led the Department of the Navy and DOD Inspector General to agree to move quickly to an audit of the fiscal year 2012 budget statement. 

The full list of DOD entities that have received opinions and other significant accomplishments will be published in our semi-annual FIAR Plan Status Report. In 

fiscal year 2011, for example, independent auditors issued clean opinions for Defense organizations totaling $110 billion in budgetary resources, an amount equivalent to the budgets of nearly half of the non-Defense agencies across government. 

But there is much more to be done. 

BUSINESS TRANSFORMATION AND FINANCIAL MANAGEMENT

In addition to our important financial management advancements, over the past 

year the Department has taken a number of steps to improve its overarching business environment, from releasing enhanced strategic guidance for its business operations, to furthering the establishment of a performance culture through performance management and improvement practices, to delivering tangible, improved business outcomes into the hands of our warfighters in areas such as energy efficiency, 

maintenance cycle time, and in-theater business intelligence. 

The Department continues to improve key enablers of its business operations, including financial management and auditability, the Business Enterprise Architecture (BEA) and defense business systems environment. The Armed Services Committees have been extremely helpful in providing the Department with tools to improve these areas. We appreciate this opportunity to update you on our progress. 

GOVERNANCE OF BUSINESS SYSTEMS INVESTMENTS

One significant development in the management of the Department’s defense 

business systems environment is the change to the investment management process 

that Congress passed as section 901 of the National Defense Authorization Act 

(NDAA) for Fiscal Year 2012. In response to section 901, we are creating a single 

Investment Review Board (IRB) and investment management process to review and 

certify the planning, design, acquisition, development, deployment, operation, mainVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
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tenance, modernization, and project cost benefits of all defense business systems 

that have total costs greater than $1 million across the current Future Year Defense 

Program, including legacy systems. This is in contrast to our current process that 

includes multiple, functionally-oriented IRBs that review only development or modernization investments over $1 million. While we were pleased with the Department’s fiscal year 2011 progress in eliminating 120 legacy systems, we anticipate 

that the changes introduced by section 901 will help to further accelerate the transition away from our legacy environment. Effective governance of our defense business systems environment is crucial to our overarching business improvement initiatives. Because of this critical link, we can ensure there is strong integration between 

our broader business governance and our investment management process. 

Implementation of section 901 is underway and is being conducted in phases, so 

that we may provide for an orderly transition from our current governance process 

to the new one. To accomplish the legislative mandate, the Department created an 

Investment Review Framework that requires components to create organizational 

execution plans for their portfolio of investments that are aligned to functional 

strategies approved by the IRB. The investment review process will employ a structured methodology for classifying and assessing business investments via multiple 

views, including: 

• An organizational view that promotes visibility across business mission 

areas for DOD components. 

• A functional view that seeks to eliminate redundancy and enhance interoperability. 

• An end-to-end view that enables visibility from a process perspective 

across the Department’s business enterprise. 

We look forward to updating you further on the implementation of this important 

legislation. 

BUSINESS ENTERPRISE ARCHITECTURE

The BEA, guided by the Department’s strategic priorities, is an integrated information architecture that provides guidance for the Department’s business operations and helps guide and constrain our investments in business systems. The BEA 

defines the Department’s target business environment, including the necessary data 

standards, business rules, processes, and performance metrics that will allow our 

systems to be interoperable. Beginning with BEA 1.0 in 2003, the Department has 

released improved versions of the BEA. The Department released BEA 9.0 on March 

16, 2012. 

BEA 9.0 continues to refine end-to-end process definitions and associated details 

for processes that support audit goals. Using this framework of end-to-end business 

processes, rather than an organizationally or functionally stove-piped approach, ensures we think about our business in a holistic way, recognizing the connections and 

dependencies each individual business area has on the others. This end-to-end approach will also help to minimize the number of required data exchanges and system-to-system interfaces, reducing the potential for error and increasing process 

standardization, which is essential to a clean audit. 

BEA 9.0 also improves the usability of the architecture, consistent with industry 

leading practices. BEA 9.0 applies open (vice proprietary) standards and protocols 

to architecture development and common business process modeling notations. This 

will make it easier for the Department to ensure compliance with the BEA and 

interoperability between its systems, continuing the thrust toward enabling 

auditability. To implement these new approaches, DOD components have been directed to use these specified standards, and the end-to-end process framework, in 

the development of subordinate enterprise and solution architectures that are federated or asserting compliance with the BEA. Implementation and adoption is ongoing throughout the Department. 

BUSINESS CAPABILITY LIFECYCLE AND ACQUISITION OF DEFENSE BUSINESS SYSTEMS

Another significant development in management of the Department’s defense 

business systems environment has been adoption of a new acquisition model for defense business systems, the Business Capability Lifecycle (BCL). BCL provides a 

comprehensive process that aligns requirements, investment, and acquisition processes for defense business systems under an integrated governance framework and 

focuses on incremental delivery of capability, within 18 to 24 months of program initiation. The BCL approach is tailored to accommodate the unique characteristics of 

IT acquisition. It also ensures that we deliver new capabilities to Department users 

more quickly, including capabilities instrumental to our audit efforts. BCL’s increVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
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mental approach also maintains better control over cost, schedule, and performance 

requirements. 

The Under Secretary of Defense (Acquisition, Technology, and Logistics) issued 

BCL policy on June 23, 2011 and the Defense Enterprise Accounting and Management System (DEAMS) was the first program to achieve an acquisition decision 

under BCL policy. Through the use of BCL, DEAMS has integrated traditionally 

stove-piped processes and enabled tight integration between the functional sponsor 

and the program office. 

BCL is being incorporated into the next update of the DOD 5000.02 acquisition 

instruction and the Defense Acquisition Guidebook. We continue to conduct targeted 

outreach with Program Managers, Functional Sponsors, and Program Executive Officers on the BCL policy, and are working with the Defense Acquisition University 

to embed BCL into appropriate curriculum. Finally, we are in the process of 

transitioning several major IT programs to BCL. 

BUSINESS PROCESS REENGINEERING

A fourth important development in management of our defense business systems 

environment has been the introduction of new Business Process Reengineering 

(BPR) requirements into the Department’s IRB process. Section 1072 of the NDAA 

for Fiscal Year 2010 stipulated that investments may not be certified to obligate 

funds through the Department’s IRB process without having reengineered their 

business processes and reduced unique requirements and system interfaces. Conducting appropriate BPR throughout a defense business system’s acquisition or 

modernization lifecycle is critical to improving requirements definition and stabilization for our acquisition programs and the overall performance of our defense business systems. By applying BPR early and upfront in a program’s lifecycle, we can 

ensure the program has clearly identified and defined the business problem the solution is intended to solve, and that the solution appropriately applies changes to 

people, process and organization, in addition to a materiel technology solution. 

The Department implemented this requirement through an assessment process 

tied to the Department’s IRB governance framework. As the DCMO and Military 

Department CMOs conducted BPR reviews, they incorporated lessons learned into 

revised and improved implementation guidance. During fiscal year 2011, assessments were completed for all 160 IRB certification actions. Going forward, BPR will 

be required in the Department’s new IRB process. 

BUSINESS SYSTEMS IMPLEMENTATION

As discussed above, the Department has continued to mature Business Transformation related processes, architectural framework, and governance that support 

our transition to a more modern and disciplined business environment. This transition is driven by a number of activities to include the implementation of selected 

Military Service or Agency Enterprise Resource Planning Systems (ERPs), modernizing legacy systems when supported by a business case and aggressively sun-setting legacy systems that are not aligned with our business objectives. The implementation of these new systems is a key enabler for executing important process 

and control changes as well. 

Today, DOD is implementing multiple ERPs across the Military Departments and 

Defense Agencies to serve as the business backbone of their operations. Each of 

these implementations is at a different stage of its lifecycle and most have experienced challenges as they have moved from design to implementation. Broadly, we 

continue to improve our oversight of these programs in a number of ways, including 

putting in place more rigorous performance measures that broaden the discussion 

from standard acquisition measures to key technical and business measures. This 

has led to a closer link between the information technology programs and the business outcomes that they are helping to enable. Additionally, we are applying lessons 

learned across all of the programs in the portfolio and incorporating recent GAO 

and DOD Inspector General (IG) findings, which have highlighted deficiencies in 

compliance, shortcomings in change management or training and difficulties in 

management of data quality and interfaces that have created inefficiencies and 

labor intensive rework. We acknowledge that there have been and continue to be 

issues and, as GAO has noted, DOD governance has taken appropriate action to 

limit the pace of deployment. We are committed to working through every significant deficiency in order to realize the long term value of these investments. 

In several cases there have been issues associated with ERP compliance with 

basic requirements (or standards) such as the U.S. Standard General Ledger 

(USSGL) and the DOD Standard Financial Information Structure (SFIS). Each instance of non-compliance is investigated and addressed. But many situations result 

14 

from the evolution of standards and the time it takes for those standards to work 

their way into use. In short, they are matters of timing. We understand that these 

basics are the key to both reporting accuracy and interoperability and are working 

to develop processes to ensure that changes are better communicated and controlled. 

Some SFIS and USSGL compliance deficiencies have been identified, many have already been corrected, and plans are in place to correct outstanding instances of noncompliance. Despite these challenges, the more disciplined transaction processing 

capability will, over time, result in improved data quality and integrity compared 

to our existing legacy processes. That is an important element of context often lacking in discussion of problems associated with implementing our ERPs. 

There is also a perception that the way DOD has implemented ERPs creates duplication or overlapping capabilities. These investments are reviewed with a goal of 

avoiding and eliminating redundancy. With the implementation of Section 2222 of 

the NDAA 2012, we expect to achieve an even more robust business IT portfolio 

management process. We believe our current ERP implementations provide opportunities to replace redundant legacy systems and represent an appropriate mix of capabilities at the operational level where specific business operations or missions are 

supported. 

The Department has made notable progress over the past 2 years. A few noteworthy examples follow: 

• The Marine Corps’ Global Combat Support System (GCSS–MC) is supporting 

USMC budgetary auditability while also delivering tangible operational value 

including: 

• ‘‘Time to First Supply Status,’’ a primary measure for logistics responsiveness, has been reduced from over 36 hours to an average of 10 hours. 

• ‘‘Order Shipment Times’’ for GCSS–MC users has been reduced by 26 

percent. 

• ‘‘Maintenance Repair Cycle Time’’ has been reduced by 43 percent in the 

last 2 months from a baseline of 40 days. 

• During Operation Tomodachi, the 2011 earthquake and tsunami humanitarian assistance and disaster relief efforts in and around Japan, the 

GCSS–MC system provided critical real-time in transit visibility for high 

priority parts. 

• The Air Force’s Defense Enterprise Accounting and Management System 

(DEAMS) is currently fielded at Scott Air Force Base and the Defense Finance 

and Accounting Service Limestone, Maine and is delivering tangible business 

value: 

• Reduced late interest payments within the U.S. Transportation Command 

from approximately $161.00 per $1 million to approximately $7.00 per $1 

million. 

• The Defense Logistics Agency’s (DLA) EProcurement program provides key 

capabilities in a single integrated procurement process solution in support of 

sustainment logistics. EProcurement recently exceeded all key performance parameters during performance stress tests, including: 

• System was designed to process 8,500 solicitations per day and exceeded 

the threshold by more than 90 percent during development testing. 

• System was also designed to evaluate 23,000 proposals per day and during development testing exceeded the threshold by 100 percent. 

DOD’s modernized systems environment, including each of the Department’s 

ERPs provides the opportunity for improved effectiveness and efficiency of budgeting 

and financial accounting operations by providing users with standardized financial 

and business processes, a single authoritative data source, and real-time posting to 

external sources. In the past, we had to rely on manually-generated summary information; we now have much more access to transaction-level data that will help support future audits and provide leaders with information for better business decisions. These programs and their organizational sponsors are committed to realizing 

this significant potential. 

While the effective implementation of ERPs will not achieve auditability by itself, 

it will help to provide the modern business environment we need to meet and sustain the statutory requirement for audit readiness. 

CONCLUSION

Madame Chairman, we are making significant progress. While we are mindful of 

the work that remains, we are reasonably confident that we will achieve our audit 

goals. As we look ahead, we appreciate the support we have received here in ConVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
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gress. Your constructive criticism and continuing oversight are helping to sustain 

our progress. 

We also welcome your help with what has been a major problem for financial 

management at DOD. We refer to the budgetary uncertainty that we have encountered in the recent past, including no fewer than four threats of government shutdown last year, which generated time-consuming and unproductive planning efforts. 

Now the shadow of possible sequestration is falling across our path. Dealing with 

these uncertainties drains valuable time and leadership attention from important 

initiatives, including our commitment to audit readiness. Congress could help a 

great deal by returning to a more orderly budget process. 

Thank you again for your interest in this vital subject. We welcome your questions. 

Mr. HALE. If it is all right with you, Chairwoman McCaskill, we 

will go Army, Navy, Air Force, one statement per department, and 

then I assume GAO. Does that work? 

Senator MCCASKILL. That works very well. Thank you. 

STATEMENT OF HON. JOSEPH W. WESTPHAL, CHIEF MANAGEMENT OFFICER OF THE ARMY; ACCOMPANIED BY HON. 

MARY SALLY MATIELLA, ASSISTANT SECRETARY OF THE 

ARMY, FINANCIAL MANAGEMENT AND COMPTROLLER 

Mr. WESTPHAL. Good afternoon, Madam Chair, Ranking Member 

Ayotte, members of the subcommittee. It is good to be with you 

today and thank you for having this hearing. 

Dr. Matiella, our Assistant Secretary for Financial Management, 

and I have a joint statement together. We have presented it for the 

record, and I will make a few summary statements from it. 

The first thing I want to tell you is that your Army leadership 

is really engaged. I believe we have a sound plan to achieve an 

auditable SBR by the end of fiscal year 2014, and full financial 

statement audit readiness by the end of fiscal year 2017. 

Through DOD’s FIAR efforts, the Army is connected to the larger 

audit readiness community, sharing lessons learned and best practices. Consistent with DOD’s strategy, the Army developed a financial improvement plan with specific measurable actions and interim milestones. Our plan enables the Army to assess progress, 

overcome obstacles, and incorporate recommendations from both 

independent auditors and GAO. We continue to subject it to close 

scrutiny. Since July 2011, we have received two positive audit results by independent public accounting firms. These are incremental but important steps towards auditability. Dr. Matiella and 

I are confident that the Army is on track and will achieve our 

goals. 

In support of these efforts, the Army continues to work with 

DOD’s Deputy CMO, Ms. McGrath, to improve our investment control process. Published in October 2010, the Army’s business systems architecture and transition plan provides a framework and a 

road map for enabling audit readiness, optimizing business operations, and steering our business systems investments. Using this 

framework, the Army will transition our legacy systems and 

prioritize our business systems investments within a single integrated architecture. 

Over a year ago, the Army chartered the Business Systems Information Technology Executive Steering Group, a governance forum 

that I personally chair, to review business policy and serve as a key 

component of the Army’s investment review process. Comprised of 

16 

senior Army leaders, including Dr. Matiella, this group shaped the 

business systems information technology strategy that was approved by the Secretary of the Army in February 2011. The combination of a clearly defined strategy and effective investment controls ensure that the Army makes sound investments in our business systems. 

More recently, the Army conducted our first five business domain 

portfolio reviews covering over 700 business systems. The reviews 

are not only serving to solidify the Army’s business systems architecture, but also helping to establish a targeted environment centered on our ERPs. As the process matures, the portfolio reviews 

will provide a great opportunity to identify improvements to our 

business processes, streamline our business systems, and establish 

a culture of continuous improvement. 

In conclusion, Dr. Matiella and I assure you that the Army is on 

track to meet our auditability goals, to improve management of our 

business systems investments, and establish a solid foundation for 

business transformation across the Army. 

On behalf of the Army, we do want to thank you, the members 

of this committee, for the continued interest in this very important 

matter and the unwavering support that you do give to our soldiers 

and families, as you so stated. 

[The joint prepared statement of Mr. Westphal and Dr. Matiella 

follows:] 

JOINT PREPARED STATEMENT BY HON. JOSEPH W. WESTPHAL AND HON. MARY SALLY

MATIELLA

Madam Chairman McCaskill, Ranking Member Ayotte, and distinguished members of this subcommittee, thank you for the opportunity to appear before you today 

to discuss the Army’s financial management and business transformation efforts. 

It is my privilege to be here along with the Under Secretary of Defense (Comptroller) and Chief Financial Officer, the Honorable Robert Hale; the Department’s 

Deputy Chief Management Officer, the Honorable Elizabeth McGrath; my colleagues 

from the Navy and Air Force, and the Assistant Secretary of the Army for Financial 

Management and Comptroller (ASA(FM&C)), the Honorable Mary Sally Matiella. I 

can assure you that our organizations all work in close collaboration, capturing valuable lessons learned, and sharing best business practices. I’d like to thank them 

for their continued support. 

The topics of today’s hearing are as important to us as they are to this subcommittee. Be assured, your Army leadership, our soldiers, and our civilians understand the fiscal challenges confronting our country. We are unified in our effort to 

make lasting improvements that will enable us to operate more effectively and efficiently within limited resources. As President Obama stated ‘‘we must put our fiscal 

house in order and renew our long-term economic strength.’’ My colleagues and I 

are all committed to being part of the solution. 

FINANCIAL AUDITABILITY

Due to persistent and focused work across the entire Army, we have a sound, 

resourced plan and the appropriate leadership engagement to achieve Secretary Panetta’s directive to assert auditable Statement of Budgetary Resources (SBR) by the 

end of fiscal year 2014 and assert full financial statement audit readiness by the 

end of fiscal year 2017. Appropriate guidance and direction from Congress, the Secretary of Defense, and the Office of the Under Secretary of Defense (Comptroller) 

(OUSD(C)) have enabled the Army to develop a focused Financial Improvement Plan 

(FIP), begin demonstrating our audit readiness and build upon our early achievements. 

Through the DOD’s Financial Improvement and Audit Readiness (FIAR) efforts, 

the Army is connected to the larger Department of Defense (DOD) audit readiness 

community, sharing lessons learned and best practices. OUSD(C) has formulated a 

comprehensive strategy with a critical path that allows the Army to focus on improving the information most useful to decisionmakers, while moving DOD closer to 

17 

the ultimate goal of achieving and sustaining auditability. The FIAR guidance defines a series of standardized phases that must be followed to achieve audit readiness. The methodology focuses on the identification and implementation of key control objectives and supporting documents. OUSD(C) conducts quarterly updates with 

the Services to maintain the focus on auditability and efficiency progress. 

To achieve the FIAR objectives, the Army has allocated the necessary resources 

and developed an infrastructure to perform financial improvement activities. This 

infrastructure is responsible for defining and executing the Army’s Financial Improvement Plan; it includes specific, measurable actions and interim milestones necessary to remedy known audit readiness impediments. The Army uses these interim 

milestones to assess progress and incorporate recommendations from independent 

auditors, the Government Accountability Office (GAO), the DOD Office of the Inspector General, and the Army Audit Agency. We are specifically addressing the six 

auditability challenges identified by GAO: 

(1) Sustaining continuous leadership through the Secretary of Defense directive, 

active engagement and directive memoranda from the Secretary of the Army, 

Chief of Staff of the Army, Under Secretary of the Army, ASA(FM&C), and 

the Army Audit Readiness Strategy; 

(2) Building a competent workforce through the Command and Installation Audit 

Readiness Guide, Army Knowledge Online Audit Readiness Site, audit readiness training, Annual Financial Improvement Workshop, and FIP Report 

quarterly newsletter; 

(3) Developing a well-defined architecture that has been vetted through our Business Systems governance process and incorporates the 15 End-to-End processes found in the Office of the Secretary of Defense (OSD) Business Enterprise Architecture (BEA); 

(4) Conducting Enterprise Resource Planning (ERP) system auditability assessments and keeping the Office of Business Transformation and Program Executive Officer-Enterprise Information Systems actively engaged; 

(5) Providing accountability and oversight through: Senior Executive Service performance plan requirements; Army governance, including quarterly In-Process 

Reviews, Audit Committee meetings, and Internal Review Workgroups; and 

participation in OSD(C) governance boards; and 

(6) Establishing internal controls through installation-level process and control 

assessments, corrective action implementation, business process and controls 

training, leveraging Internal Review to assess controls and corrective actions, 

instilling discipline, and compliance with current policies. 

The Army has subjected the FIP to strenuous scrutiny to hold ourselves accountable and identify potential deficiencies. Over the past 2 years, since the initial 2010 

GAO review of GFEBS, the Army has remediated the findings, which resulted in 

DOD’s decision to authorize full deployment for GFEBS in June 2011, to include, 

greatly improved training; and adding the identified chart of accounts and Standard 

Financial Information Structure (SFIS) compliance. The Army is vigorously pursuing excellence in reaching the fiscal year 2014 and fiscal year 2017 auditability 

goals as reflected in recent successes. 

The U.S. Army Corps of Engineers is the Army’s first and DOD’s largest entity 

to receive an unqualified audit opinion on their financial statements and has subsequently sustained clean audit opinions. In the General Fund Enterprise Business 

System (GFEBS) environment since July 2011, we have received positive audit results by independent public accounting firms. The first of 3 planned examinations 

involved a review of over 2,500 supporting documents resulting in the independent 

auditors issuing an unqualified opinion on appropriations received and a qualified 

opinion on five business processes at three sites. A second examination is scheduled 

for this summer at nine GFEBS sites and DFAS. The third examination will be conducted next fiscal year and will include all Army GFEBS sites. These examinations 

are important incremental steps toward auditability. We will continue to progress 

and are committed to sharing our lessons learned with DOD and our sister Services 

as we proceed. We remain confident that the Army is on track to achieve both the 

fiscal year 2014 SBR and the fiscal year 2017 full audit readiness goals. We appreciate your continued support. 

BUSINESS TRANSFORMATION

In October 2010, the Army published its first Business Systems Architecture & 

Transition Plan (BSA&TP). The BSA&TP provides the framework and roadmap for 

enabling audit readiness, optimizing business operations, and steering our business 

system investments. It integrates Enterprise Resource Planning (ERP) solutions, the 

Army’s functional architecture, and the DOD Business Enterprise Architecture 

18 

(BEA). Using this framework, the Army will transition over 700 legacy systems and 

prioritize new business system investments within a single, integrated architecture. 

Four ERPs form the backbone for our business systems enterprise architecture 

and are critical to our financial auditability goals. They are: the General Fund Enterprise Business System (GFEBS); the Global Combat Support System-Army 

(GCSS-Army); the Logistics Management Program (LMP); and the Integrated Personnel and Pay System-Army (IPPS-Army). Collectively they will manage the material balance of the current and future general funds for the Army. GFEBS unifies 

financial reporting and management across the Army and serves as the centerpiece 

for financial auditability efforts and will be fully deployed in fiscal year 2012. Presently, GFEBS is being used by about 45,000 of approximate 50,000 eventual users, 

is 94 percent SFIS compliant and on track to be fully SFIS compliant by the end 

of this fiscal year. It has a track record of being 99.9 percent available, and at the 

beginning of this fiscal year, the Army had already processed over 20 million financial transactions using GFEBS with zero dollars in Anti-Deficiency Act violations. 

To date GFEBS has distributed nearly $80 billion in funds and obligated approximately $60 billion. The system also provides cost and asset functionality not available in legacy systems. 

LMP Increment 1 (production baseline) is fully deployed to 25,000 users at 50 

sites across the Army’s Materiel Command and contains the financial ledger for the 

Army Working Capital Fund. Throughout the remainder of fiscal year 2012 the 

ASA(FM&C) is overseeing final enhancements to bring it within compliance with 

audit standards. Following direction from the DOD Deputy Chief Management Officer, in December 2011, LMP was converted from a service contract to an acquisition 

Program of Record to provide additional oversight for future changes to this critical 

enabler of national level logistics. 

GCSS–A has completed Initial Operational Testing at both Fort Irwin, CA, and 

Fort Bliss, TX. The Army is evaluating the results of testing and making necessary 

adjustments to the system. We anticipate receiving a full deployment decision within the next 6 months which will ensure GCSS–A is available to support equipment 

accountability and serviceability for our financial auditability goals in the future. 

Lastly, in February 2012 the Army awarded a contract for the first increment of 

IPPS-Army, an integrated database which consolidates personnel information across 

the Active Duty, U.S. Army Reserves and Army National Guard. Subsequent increments of IPPS-Army will streamline personnel processes and integrate personnel 

pay for over 1 million uniformed personnel across the Army. In fiscal year 2011,the 

Federal Chief Information Officer completed a top-to-bottom review of the IPPSArmy program resulting in a revised acquisition strategy which minimizes risk to 

the government. While these changes extended the lifecycle of development, the 

military pay integration will be fielded in time to support our fiscal year 2017 full 

auditability goals. 

The Army continues to work with the DOD Deputy Chief Management Officer to 

define a revised investment control process as outlined in section 901 of the National Defense Authorization Act for Fiscal Year 2012. Over a year ago, the Army 

chartered the Business Systems Information Technology Executive Steering Group 

(BSIT–ESG), chaired by the Under Secretary of the Army. In addition, the Army 

established the 2-Star and 3-Star BSIT Working Groups to provide additional levels 

of collaboration on cross-functional issues. Comprised of senior Army business leaders, these forums review business policy and serve as a key component in reviewing 

and integrating the Army’s investment review process. The same leaders shaped the 

BSIT Strategy approved by the Secretary of the Army in February 2011. The combination of a clearly defined strategy and effective investment controls will ensure 

the Army makes the appropriate investment in our ERPs and other business systems. 

The Chief Management Officer in collaboration with the Vice Chief of Staff conducted portfolio reviews of our five primary business functions: financial management; acquisition; logistics; human resource management; and installations, energy 

and environment. These reviews included scrutiny of our business systems and business architecture. 

Collectively the Army has over 700 legacy business systems aligned with these 

functions. The reviews were used to reinforce accountability and emphasize a cost 

consciousness environment among Army leaders that heretofore have been absorbed 

by fighting the war for 10 years. The reviews will further solidify the Army’s business systems architecture and establish the target environment centered around our 

four ERP systems and have facilitated retiring approximately 180 legacy business 

systems incapable of meeting our enterprise management and audit readiness objectives. This target environment will guide the investment strategy for the future and 

ensure that systems are synchronized, functionally optimized, and prioritized in 

19 

support of our key business processes. In addition, the portfolio reviews identified 

new opportunities to improve our business processes, consolidate our business systems, and establish a foundation for continuous improvement. 

Our business architecture establishes the framework for mapping and improving 

the Army’s end-to-end (E2E) business processes. Process mapping provides a better 

understanding of how work gets done and identifies cross-domain dependencies. It 

enables the Army to pinpoint reengineering efforts, improve process efficiency, and 

invest wisely in business systems. Initially, the Army is focusing on 5 of the 15 E2E 

processes: Procure-to-Pay, Acquire-to-Retire, Hire-to-Retire, Deploy-to-Redeploy/Retrograde, and Environmental Liabilities. These five processes capture most of the 

Army’s Title 10 mission and thus provide the greatest opportunity for improvement. 

CLOSING STATEMENT

On behalf of the Army, thank you for your continued interest in this very important matter and for your unwavering support in all you do for our soldiers and their 

families. While the Army continues to support the ongoing war in Afghanistan, we 

are shaping our force structure and developing resourcing strategies to meet the 

new defense strategy. Fielding ERPs across the entire Army, we are able to leverage 

leadership at many levels to achieve our fiscal year 2014 and fiscal year 2017 

auditability goals. 

Through an adaptive approach, thousands of military and civilian professionals 

are fielding these systems, achieving front line progress, and establishing a solid 

foundation for continuing business transformation across the Army. With the support of this committee, the Office of Management and Budget, OSD, and Army leaders throughout the force, I am confident that the Army is on a positive path to meet 

our goals. Thank you. 

STATEMENT OF HON. ROBERT O. WORK, CHIEF MANAGEMENT 

OFFICER OF THE NAVY; ACCOMPANIED BY HON. GLADYS J. 

COMMONS, ASSISTANT SECRETARY OF THE NAVY, FINANCIAL MANAGEMENT AND COMPTROLLER 

Mr. WORK. Madam Chairman, Ranking Member Ayotte, thank 

you for this opportunity to discuss the Department of the Navy’s 

progress towards achieving financial auditability and business 

process reform and the important role that the Navy ERP will play 

in these efforts. 

I, like my colleagues, have submitted a joint statement with Ms. 

Commons for the record, and I would just like to make a couple of 

key points before answering your questions. 

Ms. Commons and I, as well as the Secretary of the Navy, the 

Commandant of the Marine Corps, and the Chief of Naval Operations (CNO), are all committed to DOD’s plan to achieve audit 

readiness. At every chance I get, I personally stress the importance 

of this goal with our leaders, managers, and employees at every 

single opportunity, and I believe the Secretary, the Commandant, 

and the CNO do as well. As Secretary Hale has said, setting a clear 

tone from the top and engaging the entire Navy in audit readiness 

is very essential. 

We have developed a very detailed, Navy-wide plan. We are now 

working with each of our major commands and our service providers to ensure that they understand their specific role in achieving this very important goal. Based on some very important 

foundational work by our predecessors, the tone from the top, and 

this plan, particularly the trailblazing efforts of the Marine Corps, 

I believe the Navy is very well-positioned to achieve Secretary Panetta’s goal of an audit-ready SBR by fiscal year 2014, as well as 

being fully audit-ready by 2017. 

Our major IT systems, we think, are well-aligned with this effort. 

All three of our major current efforts are on strong footing. The 

20 

Navy ERP is on schedule to complete its program of record in fiscal 

year 2013. We have 66,000 users now worldwide. We will have 

71,000 by the end of fiscal year 2013. That will manage about 47 

percent of our total obligational authority. 27 systems have been 

retired to date as a result of this deployment. We are on schedule 

to reduce another 55 systems this fiscal year, for a total of 82, and 

we expect a total of 96 systems to be shut down by fiscal year 2016. 

Additionally, we have a comprehensive effort to standardize execution of business processes among our Navy ERP users. Reducing 

the process variations, as you mentioned in your statement, ma’am, 

when using the system along with standard operating procedures 

that will be followed by all, will achieve the greatest benefits across 

the Navy. Paring down the number of steps to complete Navy ERP 

transactions will make this system more efficient and easier to use, 

and by permitting fewer variations in the processes, we will reduce 

systems maintenance costs. Finally, consistent, streamlined procedures will require less future work in sustaining our control environment, which is very important. 

We are in the process of developing data standards across the enterprise that will allow us to aggregate information from all of our 

ERP systems with those systems that we decide to maintain. 

The Marine Corps GCSS is deployed. It will eliminate four major 

legacy systems by the end of fiscal year 2013. In fact, I am very 

pleased to report that since 2008, we have reduced more than 1,400 

systems and applications and we have shut down 400 networks. 

The Navy’s Future Personnel and Pay Solution (FPPS) has been 

refocused. I ordered an assessment of this effort in late 2010, and 

as a result of this assessment, we have determined that instead of 

initiating a large-scale business systems acquisition, we will instead focus on process improvement and leveraging this investment 

with the existing Navy Standard Integrated Personnel System. The 

Navy reached this conclusion after an exhaustive review of its policies, practices, and processes, and I believe this is a case of business process engineering done right. Instead of building the system 

to automate how we used to do business or do business today, the 

functional community is first rethinking what it wants to do in the 

future, and only then will we look to IT solutions to support the 

new and improved way of service delivery. We think this approach 

has reduced the original estimated cost by at least $167 million 

and eliminated at least $157 million in additional cost growth from 

fiscal year 2010 through 2017. 

I think this example points to one of the keys to both auditability 

and the successful launch of IT systems. As you mentioned, ma’am, 

reengineering of our business processes is the key. Our business 

process reform approach is now mature to the point where we address the full spectrum of business operations by focusing on three 

things: strategic management, understanding the costs of doing 

business, and managing the organization toward achieving better 

and more measurable results. 

Our methodology requires baselining and mapping business processes, allowing the business owners to identify and prioritize their 

problems and then exploiting opportunities for improvement. 

A second key is data standardization, and a third is having good 

internal controls. 

21 

We are focused on all three of these things. Auditable financial 

statements will be the outcome of these efforts. 

So the Navy, I believe, has an aggressive, forward-leaning plan 

to take control of how we do business, to standardize data, and ultimately achieve financial audit readiness, a plan which has yielded initial successes. We have had two favorable opinions on appropriations received and on the existence and completeness of our 

submarine, ship, missile, and satellite inventories. We have not received formal word, but we have been told that our aircraft inventories are also ready. So we continue to make progress, and I am 

relatively confident that we will meet all of the deadlines. 

I would like to echo Under Secretary Westphal’s appreciation for 

this subcommittee’s focus on this effort, and we look forward to 

continuing to work with you and your staff. I am very much looking forward to any questions you might have. 

[The joint prepared statement of Mr. Work and Ms. Commons 

follows:] 

JOINT PREPARED STATEMENT BY HON. ROBERT O. WORK AND

HON. GLADYS J. COMMONS

Chairman McCaskill, Senator Ayotte, thank you for this opportunity to discuss 

the Department of the Navy’s (DON) progress toward achieving financial 

auditability, business process reform and the important role Navy Enterprise Resource Planning (ERP) will play in these efforts. To maximize the use of our human 

and fiscal resources; prevent fraud, waste and abuse; and provide the warfighter the 

best capabilities to achieve the Nation’s security strategy, it is essential that the financial data we rely on for decisionmaking is accurate and reliable. I am committed 

to the Department’s aggressive plan to achieve audit readiness and stress the importance of this goal with our leaders, managers, and employees at every opportunity. Setting a clear ‘‘tone from the top’’ and engaging the entire Department in 

audit readiness is essential for success in this complex undertaking. 

To achieve audit readiness, we have focused our efforts on improving our business 

processes end-to-end; modifying our systems to meet Federal Information System 

Controls Audit Manual standards; and strengthening internal controls surrounding 

those business processes and systems. Our business process reform approach has 

matured into addressing the full spectrum of business operations: focusing on strategic management, understanding the costs of doing business, and managing the organization towards achieving better and more measurable results. Our methodology 

requires baselining and mapping business processes, allowing the business owners 

to identify and prioritize problems, and then exploiting opportunities for improvement. Auditable financial statements will be the outcome of our business transformation efforts. 

We have developed a detailed Department-wide plan and worked with each major 

command and our service providers to ensure they understand their role in our success. Based 

on our comprehensive plan and our ongoing efforts, we are well-positioned to 

achieve Secretary of Defense Panetta’s goal of an audit ready Statement of Budgetary Resources (SBR) by the end of fiscal year 2014, as well as reaching the fiscal 

year 2017 date established by the National Defense Authorization Act for Fiscal 

Year 2010 for full auditability. 

The Department is making steady progress on its financial auditability plan. The 

audit of the Marine Corps’ SBR continues. Our goal was to achieve a favorable audit 

opinion on the fiscal year 2011 SBR audit. We extended the audit 3 months because 

an opinion appeared to be within our grasp, but the need for additional test sampling, plus time limitations, forced the conclusion of this second-year effort without 

an opinion. However, noting the significant progress made, both the DON and the 

Department of Defense Inspector General agreed, that we should now move quickly 

into an audit of the Marine Corps’ fiscal year 2012 SBR. 

The Marine Corps’ experience has been valuable to the rest of DON and to the 

other military departments as we all seek to achieve SBR audit readiness. The Marine Corps has developed essential financial management capabilities for the first 

time, such as reconciling cash with the Treasury’s balance; and they constructed a 

robust, effective audit response infrastructure, enabling the rapid collection and 

22 

transmission of large volumes of business process documentation to auditors for 

analysis. 

Additionally, the Marine Corps is executing an aggressive corrective action plan 

for business process and system deficiencies identified during its audit readiness 

preparations and during the annual audits. This sustained progress in improving 

Marine Corps business operations, set in motion by the pursuit of auditability, has 

produced instructive lessons for DON and the other Services. 

The Department of the Navy has achieved other notable audit readiness accomplishments. In late summer 2011, we achieved a favorable audit opinion on the Department’s Appropriations Received process. Validation by an independent accounting firm confirms that the process and systems we use to allocate the resources provided by Congress are auditable. In January 2012, the Department of Defense Inspector General completed an examination and verified that the processes and systems we use to establish Existence and Completeness of ships, submarines, Trident 

missiles, and satellites inventories are audit ready. A similar examination of DON’s 

aircraft inventory management is currently ongoing. 

A second examination is also underway, focusing on the E–2D Hawkeye aircraft 

acquisition program. This examination will determine whether the business processes and systems used to manage this major acquisition program meet audit standards. This examination has added importance because the E2–D program is executed within Navy ERP; the results will reflect the effectiveness of the controls in 

the Navy’s ‘‘target’’ financial system. 

Though the Department is making steady progress toward financial auditability, 

much remains to be done. Completing our ambitious SBR audit readiness schedule 

requires a number of business process assertions this fiscal year and next. We also 

need to assess the effectiveness of our major business systems’ controls. Following 

the Marine Corps’ example, the entire Department needs to fully develop the same 

fundamental financial management capabilities required for an audit, including detailed cash reconciliation; and, an effective audit response infrastructure needs to 

be in place. These complex efforts will test the Department’s acumen, as well as the 

skills of our major service provider, the Defense Finance and Accounting Service. 

Navy ERP, which accounts for over half of the Navy’s obligational authority, is 

an essential component of auditability. The Navy’s planned implementation of ERP 

at six major commands, which began in fiscal year 2008, will conclude next fiscal 

year. Concurrently, we are focusing on two other major objectives: assessing Navy 

ERP’s present ability to meet financial audit standards prescribed for a business 

system; and making improvements in its utility. A methodical effort is underway to 

standardize the execution of business processes within Navy ERP across our diverse 

user population. 

This year, an independent assessment will be conducted, determining if Navy 

ERP’s internal controls comply with the Government Accountability Office’s financial systems audit standards. Completing this survey, and quickly pursuing any follow-up remediation required, will be important steps toward Departmental audit 

readiness. We are optimistic that the assessment will demonstrate that Navy ERP 

has effective controls overall. Our E2–D audit readiness assertion, mentioned earlier, showed positive results in the Navy ERP environment. 

Additionally, our comprehensive effort to standardize execution of business processes among Navy ERP users is fully underway. Reducing process variations when 

using the system, along with establishing standard operating procedures to be followed by all, will yield benefits. Paring down the number of steps to complete Navy 

ERP transactions will make the system more efficient and easier to use. Permitting 

fewer variations in ERP business processes will reduce system maintenance costs. 

Finally, consistent, streamlined procedures will require less future work in sustaining Navy ERP’s control environment. 

In conclusion, DON has an aggressive, forward-leaning plan to achieve financial 

audit readiness—a plan which has yielded initial successes, but one which will require much more hard work and creativity throughout the entire Department to 

complete. Thank you for your continued support, and I would be pleased to answer 

your questions at the appropriate time. 

STATEMENT OF HON. JAMIE M. MORIN, ASSISTANT SECRETARY OF THE AIR FORCE, FINANCIAL MANAGEMENT AND 

COMPTROLLER; ACCOMPANIED BY DAVID TILLOTSON III, 

DEPUTY CHIEF MANAGEMENT OFFICER OF THE AIR FORCE 

Dr. MORIN. Madam Chair, thank you again for the opportunity 

to join my colleagues from across DOD and our valued partner 

23 

from GAO, Mr. Khan, for today’s hearing to discuss DOD and your 

Air Force’s efforts to achieve audit readiness. 

As you mentioned, unfortunately, our Under Secretary and CMO, 

Ms. Conaton, is recovering from an injury today. So you have me 

and her Deputy CMO, Mr. Dave Tillotson, here and we will seek 

to provide a short statement and then answer any questions that 

you have. 

Since the Air Force leadership testified to this subcommittee 

back in July of last year about audit readiness, we have made continued progress towards that goal—particularly since the Secretary 

laid out his accelerated deadline of 2014. We remain very strongly 

committed to achieving that accelerated goal for the SBR, as well 

as the broader legislative requirements for a clean audit by 2017. 

We are leaning forward aggressively on this. 

The goals are challenging for an organization as large and diverse and geographically distributed as the Air Force, so we do continue to assess, as I have testified before, that there is moderate 

risk in meeting that deadline, primarily due to systems challenges. 

As was stated earlier, our effort now focuses on achieving audit 

readiness within our legacy systems which is an effort that we are 

working aggressively on but remains an uncertain piece of our effort. 

We are working to mitigate that risk very directly through, first 

of all, strong engagement of Air Force leadership at all levels, as 

well as highly focused investments of additional human and financial resources towards this effort. We have made great progress 

over the last year. 

Speaking of leadership engagement, Secretary Panetta’s directive 

to accelerate to 2014 has been both a blessing and a challenge for 

the Air Force. The core challenge is, of course, that the accelerated 

deadline means that we cannot rely on all of those ERPs that we 

had depended upon in our previous plan. That is a real challenge. 

Waiting for those multiple critical systems to be deployed and fully 

used is no longer going to work, so we have a shift in strategy, that 

is clear. 

But the blessing is that the Secretary’s engagement, coupled 

with the consistent and strong guidance—from this committee and 

other committees—in law, and in hearing after hearing over the 

last couple of years, have really helped to build a degree of consensus on the importance of this effort and a degree of leadership 

commitment that is showing real dividends. Audit readiness has 

become a regular agenda item for the four-star leadership of the 

Air Force, involving both civilian and military leaders in a way 

that I think could not have been anticipated or imagined without 

the leadership from this committee and the Secretary. 

I think this top-level leadership is driving increased involvement 

from military commanders at all levels down to the field. There is 

still work to be done in that regard, but it is catching on quite aggressively. It also enables our very strong focus on personal accountability, and that is something that is playing out in financial 

incentives for our civilian senior executives, where the performance 

plans for about 140 civilian senior executives are directly tied to 

delivery on audit readiness goals. It is playing out in military evaluations as well, albeit to a somewhat lesser extent. 

24 

It also contributes to the very strong support we have received 

in the DOD internal resource allocation process for some of the key 

areas where we needed investments. I think of those investments, 

and we as an Air Force leadership think of those investments, in 

terms of three components: people, processes to include internal 

controls, and systems. So all three are working together. 

We are certainly encouraged with some of the interim successes 

we have had in meeting the accelerated deadline, particularly the 

fact that we received two clean opinions in the last year, on our 

Fund Balance with Treasury (FBWT) reconciliation and on our 

funds distribution process down to our major command level. We 

also, like some of the other Services, have an examination currently underway looking at our military equipment. The DOD IG 

is performing that right now, and indications so far are quite good. 

That is our aircraft, our intercontinental ballistic missiles, our satellites, et cetera. 

But we clearly still have a very aggressive schedule ahead of us, 

and it will touch those people, processes, and systems pieces. 

Our most immediate challenge right in front of us is people. We 

need to continue to hire, whether through government civilian hiring or through contractor hiring, people with the requisite skills, 

government personnel and contractors with the knowledge and experience in accounting, auditing, and financial reporting that will 

help us get across the finish line here. This is a challenge because, 

again, the scale of DOD makes finding enough people with enough 

skills a challenge. 

But we also need to continue to invest in the people, and that 

is why we strongly endorse Under Secretary Hale’s leadership on 

this financial management workforce certification initiative. We 

think that is critical. 

Our process redesign and internal control efforts and those improvement efforts have become certainly all the more important 

with the accelerated deadline, and we have been working them aggressively. But I wanted to shift to just a very brief discussion of 

our ERP system investments because that is, obviously, a key focus 

of this subcommittee. 

Financial systems modernization is clearly a key enabler for both 

achieving and sustaining full audit readiness by 2017 in a cost-effective manner to avoid that army of auditors that you discussed 

in your opening statement, ma’am. 

The Air Force recognizes, though, there are major challenges involved in fielding ERP systems in a big organization like ours, and 

we have taken and will take appropriate action to address concerns 

identified through best practice reviews and audits both from internal and external sources. We very much appreciate the active support we are getting from the Office of the Secretary of Defense 

(OSD), from the Air Force Audit Agency, from the DOD IG, and of 

course, from GAO. 

In the case of the Defense Enterprise Accounting and Management System (DEAMS), our core financial system for the general 

fund and transportation and working capital fund, we have learned 

some very key lessons from the other ERP deployments, and that 

have led us to focus on things like end-of-year financial activities 

and focus on user training and education and especially on user exVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
25 

perience issues associated with system stability. We are measuring 

our success against those goals on a weekly basis. DEAMS has now 

been deployed at Scott Air Force Base and we have gone through 

2 years worth of budget closeout in that system. We received milestone B authority for that system back in January and we are 

about to kick off an operational assessment with the Air Force 

operational evaluation team looking at the actual implementation 

of the system. We will take any lessons that come out of that and 

we will expect to deploy the system at five other bases over the 

next fiscal year. 

As the subcommittee is aware, another major Air Force ERP, our 

Expeditionary Combat Support System (ECSS), has not fared as 

well. The program is currently going through a major restructuring 

effort. We are now approaching 7 years since funds were first expended for this system, which was designed to restructure our logistics processes and field a massive ERP. The total cost on the 

system is now over $1 billion. I am personally appalled at the limited capabilities that program has produced relative to that amount 

of investment. The rest of the senior Air Force leadership feels that 

way as well. That is why we are restructuring, looking for an alternative path. The restructuring effort is ongoing right now, but the 

subcommittee and Congress should expect to see a way forward 

identified in the next month or so. We owe you a clear and concise 

description of a much better way forward for our logistics modernization and financial improvement. 

Let me just conclude by saying that while we certainly do see 

moderate risk in that 2014 deadline, we are leaning aggressively 

to achieve it and we are strongly committed to that 2014 SBR audit 

goal, as well as the ultimate goal of full accountability by 2017. 

This is a key part of the Air Force’s effort to squeeze the maximum 

amount of combat capability out of each taxpayer dollar that this 

Congress and this Nation entrusts to us. We take it seriously and 

we will continue to do so. 

Thank you again for your engagement and support. 

[The joint prepared statement of Ms. Conaton and Dr. Morin follows:] 

JOINT PREPARED STATEMENT BY HON. ERIN C. CONATON AND HON. JAMIE M. MORIN

Madame Chairman and Senator Ayotte, thank you for the opportunity to join our 

colleagues from across the Department of Defense to discuss your Air Force’s efforts 

towards achieving audit readiness. Since the Air Force leadership last testified to 

this subcommittee on audit readiness last July, the Air Force has continued to make 

progress towards our audit goals and remains committed to achieving Secretary Panetta’s goal for audit readiness on the General Fund Statement of Budgetary Resources in 2014 as well as to meeting the legislative requirements for a clean audit 

by 2017. These goals are challenging for an organization as large and diverse as the 

Air Force and so we continue to assess that there is moderate risk that we will miss 

the deadline due primarily to system challenges. However, the strong engagement 

of Air Force leadership as well as the additional human and financial resources 

dedicated to the effort in recent years will help achieve a clean audit, and we are 

making real progress. 

Audit readiness is an important goal. Our efforts are part of the broader work underway in the Department to address the national fiscal challenges that pose a serious threat to our national security. They are a key component of our ongoing work 

to give the American taxpayer confidence that we are getting the maximum value 

out of each dollar entrusted to the Air Force. 

Secretary Panetta’s directive accelerating the audit readiness date to 2014 has 

been both a blessing and a challenge. The blessing is that it has raised the visibility 

26 

of audit readiness to the point where it has been a regular agenda item for our 4- 

star leadership and created an environment where success is achievable within the 

tenure of many of these current leaders. To implement Secretary Panetta’s directive, 

the Air Force developed a detailed audit acceleration plan for each assessable unit. 

These plans include specific milestones and deliverables and are reviewed on a regular cycle in sessions held weekly by the Deputy Chief Management Officer, financial leaders, and the senior leadership responsible for the particular assessable unit. 

Our assertion teams also include members of the Office of the Secretary of Defense 

(OSD) (Comptroller) staff in order to provide us with valuable, real-time feedback 

on our effort and to minimize the need for additional testing or rework. 

The core challenge for the Air Force is that the accelerated deadline will require 

us to achieve and sustain audit readiness while multiple critical systems are still 

under development or being deployed. Our previous strategy had these systems as 

a pacing item. We will not have a final judgment on whether our legacy financial 

systems can be improved sufficiently to support an overall Air Force audit until the 

auditors can examine those systems in the field. Our emerging confidence in our 

ability to achieve this challenging deadline is partially due to the increased engagement of commanders at every level in the effort, along with demonstrated progress 

over the last 2 years and strong support in the Department of Defense (DOD) resource allocation process for targeted investments in improvements to the three critical components for an auditable enterprise: people, processes, and system. 

CURRENT PROGRESS

Since the subcommittee’s last hearing, the Air Force has made substantial 

progress on key Financial Improvement and Audit Readiness plan deliverables. Last 

August, we received a clean opinion from KPMG LLP on our Budget Authority assertion recording the receipt of funds down to our Major Commands. In the process 

of preparing the assertion, Air Force financial managers identified and implemented 

several corrective actions, most notably a standard document numbering systems for 

loading budget authority into our financial execution system, allowing us to assert 

audit readiness for the entire process. 

Another key accomplishment occurred last October when we received a clean opinion from PriceWaterhouseCoopers (PWC) on our Fund Balance with Treasury Reconciliation process. Our reconciliation with the Treasury Department for our ‘‘checkbook’’ consists of over one million transactions and is conducted on a monthly basis. 

The Air Force and the Defense Finance and Accounting Service (DFAS) are sustaining this process, reconciling 99.85 percent of our transactions at the detail level, 

exceeding the Office of Management and Budget standard. 

In January, the Department of Defense (DOD) Inspector General (IG) began an 

examination of our existence and completeness assertion for our military equipment 

(e.g., aircraft, ICBMs, and satellites), as well as for cruise missiles and aerial targets. We anticipate receiving their opinion by the end of May. These assets have 

a combined net book value of approximately $90 billion. Although cruise missiles 

and aerial targets/drones are separately reported as Operating Materials and Supplies rather than military equipment, we saw an opportunity to accelerate our overall progress and save resources by asking DOD IG to include these items in their 

examination. We will continue to look for additional opportunities to accelerate 

progress on future assertions in a cost effective manner. 

We also recently submitted assertions of audit readiness for the existence and 

completeness of our uninstalled spare engines and missile motors. These have a 

combined net book value of approximately $11 billion and include over 6,400 individual end items managed at over 160 different sites. Properly reporting these items 

in our financial statements is challenging. Items are tracked in different systems 

and classified differently depending on their installation status. It is common for an 

item to transition from one system to another and alternatively be reported differently in successive statements. Getting sufficient confidence about these areas for 

Air Force management to assert our readiness for audit required more time than 

we originally projected and demanded changes in training of our people, in our business processes, and our systems, but we now believe the required corrective actions 

are properly implemented or well underway. 

INVESTING IN PEOPLE

We are encouraged with our interim success in meeting the accelerated deadline, 

but we still have a very aggressive schedule ahead of us. Our most immediate challenge is on the people side: finding, hiring, and deploying government personnel and 

contractors with the needed knowledge and experience in accounting, auditing and 

financial reporting for the Federal Government. The compressed schedule also reVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
27 

duces the time we have to document processes, conduct testing, implement corrective actions, and verify those corrective actions are operating as intended. Additionally, many of our major milestones such as assertions on military pay, civilian pay, 

and contracting have been moved up by 2 or more years, making the need for experienced individuals even more urgent. Finally, compounding this challenge is the 

fact that the other Services and Defense Agencies will likely be seeking out these 

same individuals. We are addressing this challenge by reaching out to the accounting industry and soliciting an experienced but cost effective partner to support our 

core team of government financial managers and functional experts. 

To broaden the audit readiness effort across the enterprise, and building on an 

effort the Air Force pioneered last year, this year we required all Air Force civilian 

senior executives to include an audit readiness goal in their annual performance 

plans. While the weighting and level of detail in these goals vary based on individuals’ duties, each plan is reviewed by the Deputy Assistant Secretary for Financial 

Operations to confirm the goals are appropriate and contribute to audit readiness 

in a meaningful way. Since pay and performance evaluations are linked directly to 

accomplishment of these plans, we have high expectations. For example, many of 

our logisticians have goals supporting our existence and completeness assertions, 

while acquisition executives have goals requiring them to ensure data in our contracting and accounting systems is properly reconciled. 

Since achievement of audit readiness will require further professionalization of 

the financial management workforce, the Air Force strongly supports the Defense 

Department’s efforts on a financial management workforce certification program. 

This program will standardize educational and experience requirements for financial 

management positions. Even ahead of this effort, the Air Force’s financial management workforce is a well-educated one. Over 60 percent of Air Force financial managers hold a degree of some sort. Additionally, our primary audit readiness workforce of almost 80 includes 12 CPAs, 15 Certified Defense Financial Managers, and 

8 Certified Government Financial Managers. 

STRENGTHENING AND STANDARDIZING BUSINESS PROCESSES

In addition to mobilizing our people and investing in their skills, improvements 

in our business processes are key to meeting the accelerated deadline of 2014. While 

some audit challenges require systems enhancements, others can be overcome with 

enhanced policies. For example, our two most recent assertions for existence and 

completeness of critical assets relied primarily upon policy changes clarifying the 

need for periodic inventories and delineating responsibility for managing assets as 

they transition among Air Force and contractor facilities. 

To achieve compliance with improved and standardized processes, we are aggressively communicating with airmen across the Air Force from our major command 

commanders down to the lowest level about the meaning of audit readiness and the 

actions they can take to assist in achieving audit readiness. We recently provided 

our wing commanders with a checklist to help them understand the steps they can 

take to ensure their financial house is in order. 

We continue to collaborate with our sister services to adopt best practices as we 

work towards audit readiness. For example, we leveraged the Navy’s audit of supporting documentation and controls as a way to expose airmen to our audit activities and ensure process compliance at base level. Since February, the Air Force 

Audit Agency has begun examinations of selected financial transactions at wing 

level with seven wings participating. This effort helps to identify good and bad practices as well as process improvements that will be required when financial auditors 

begin their engagements. It also helps educate our wing commanders on audit readiness. 

The Air Force has sought validation of our progress by independent accounting 

organizations including the Government Accountability Office (GAO), the DOD IG, 

and public accounting firms. They provide valuable insight into the adequacy of the 

existing systems, recommend enhancements to support audit readiness and provide 

objective recommendations on the assertion process. For example, last summer GAO 

identified weaknesses in the type of testing performed to support the aircraft in our 

Military Equipment assertion. Specifically, they raised a concern that the sampling 

was limited to a few bases along the east coast—what auditors call judgmental sampling. 

For our recent assertions on spare engines and missile motors, we applied more 

rigorous statistical analysis allowing us to quantify potential errors across the population of items. In the case of our missile motors, we found that business practices, 

like timely updating of inventory systems, were very good at the locations where the 

vast majority of our motors were stored, but were less consistent at places that 

28 

might have just one or two motors for training purposes. Statistical analysis has not 

only enhanced the credibility of our results but in the case of our review of the 

Space-Based Infrared Satellite Network program allowed us to test 148 randomly 

selected transactions in order to evaluate the accuracy of a total population of over 

12,000 transactions. 

BUSINESS TRANSFORMATION AND ENTERPRISE RESOURCE PLANNING SYSTEMS

Air Force business transformation is anchored in architecture and associated business process re-engineering. The continued development of the business enterprise 

architecture allows the Air Force to identify gaps and redundancies that will focus 

critical resources in the proper areas. Consistent with this focus, in the fiscal year 

2013 budget submission the Air Force established an initiative to target $1.1 billion 

in savings by reviewing Air Force information technology applications to identify 

and eliminate duplicate/redundant business and operational system capabilities. In 

addition, we are minimizing configuration of commercial off-the-shelf software to 

handle unique requirements and interfaces, thus reducing life cycle costs. Consistent with recent statute, the Air Force is adjusting its current business system 

certification review process. The revision will expand business system certification 

reviews from an average of 40 systems per year over the past 5 years to more than 

200 systems that will need to be certified for fiscal year 2013. Finally, the Air Force 

is using architecture and business process re-engineering to evaluate and document 

the control processes required to support audit readiness, providing the necessary 

glue between user actions and controls contained within financial systems. 

Enterprise Resource Planning Systems (ERPs) are a key enabler to achieving full 

audit readiness by 2017 in a cost effective manner, but they are not the only step 

on the path to audit readiness. The implementation of ERPs supports achieving Air 

Force-wide standard practices and instills process controls necessary to improve financial management discipline. Where ERP development schedules will not support 

the audit readiness timelines, the Air Force will use a combination of modified legacy systems and supporting business process controls. Specific process and information system gaps (whether satisfied by ERPs or legacy system remediation) will be 

guided by Air Force Business Enterprise Architectures. 

The Air Force’s three key ERPs for audit readiness are: Defense Enterprise Accounting and Management System (DEAMS), Expeditionary Combat Support System (ECSS), and Air Force Integrated Personnel and Pay System (Air Force-IPPS). 

DEAMS and ECSS are programs that have been underway for several years, and 

Air Force-IPPS is the Air Force program that will satisfy Air Force Total Force military personnel management. 

The Defense Enterprise Accounting and Management System is jointly sponsored 

by the Air Force, U.S. Transportation Command (TRANSCOM), and the Defense Finance and Accounting Service. The program will provide accurate, reliable, and 

timely financial information using standardized business rules and processes that 

comply with existing laws, regulations, and policies. When fully operational, 

DEAMS is expected to maintain control and accountability of about $160 billion in 

Air Force general funds and the Transportation Working Capital Fund. DEAMS will 

eventually replace or subsume nine legacy systems as it becomes fully operational 

and will provide the Air Force with financial management capabilities, including 

collections, commitments and obligations, cost accounting, general ledger, funds control, receipt and acceptance, accounts payable and disbursement, billing, and financial reporting for the general fund. 

The Defense Enterprise Accounting and Management System has been used at 

Scott Air Force Base and DFAS Limestone since 2010, and has been successfully 

used to process over $11.5 billion in transactions during fiscal years 2010 and 2011. 

Moving forward, our current program plan calls for completion of maturation of the 

current operational baseline by April 2012, followed by an operational assessment 

and then deployment of that capability to five additional Air Force bases by June 

2013. We expect to complete development and deployment of DEAMS across 

TRANSCOM by the end of fiscal year 2014 and across the operational Air Force, 

Air Force Materiel Command (AFMC) and Air Force Space Command by the end 

of fiscal year 2016. DEAMS will not only be critical to sustaining audit readiness, 

but also have real cost benefit. The Air Force expects that DEAMS will support a 

more than $300 million annual savings once it is fully deployed by providing realtime visibility into costs and allowing timely reallocation of dollars while reducing 

unliquidated obligations and accounts receivable. The program successfully achieved 

a Milestone B decision in January 2012, and the program is now aligned with the 

streamlined acquisition policies for Business/IT system put forward by the DOD. 

29 

The Expeditionary Combat Support System is intended to provide the Air Force 

with a single, integrated logistics system, including transportation, supply, maintenance and repair, engineering and acquisition, for both the working capital and general funds. It will streamline the supply chain management process in the Air Force. 

Unfortunately, program performance on ECSS has continued to be poor. As a result, 

the Air Force raised concerns to the DOD Milestone Decision Authority and the Department is now engaged in strategic reassessment of the overall program. The reassessment will maintain focus on addressing both audit readiness and achievement 

of genuine logistics return on investment. A joint OSD–Air Force team recommended restructuring ECSS to focus on four critical logistics capabilities. The Air 

Force is currently drafting a Critical Change Report based on these recommendations to formally notify Congress of the restructure plan and expects delivery of that 

report by May 2012. 

The Air Force recognizes the major challenges involved in ERP efforts. In working 

with OSD and GAO, the Air Force has taken appropriate action to address concerns 

identified through internal and external reviews of both programs. In the case of 

DEAMS, we focused on end of year activities and user stability issues, measuring 

our progress against those efforts weekly. Our efforts resulted in achieving Milestone B authority in January 2012. We are actively working network latency issues 

and the program is on track to deliver a much needed capability. ECSS has not 

fared as well; the Air Force is restructuring the program in accordance with the 

OSD-led assessment and entered the Critical Change Report process February 2012 

with an estimated delivery of the report 60 days later. 

The Air Force Integrated Personnel and Pay System (Air Force-IPPS) will integrate 105 Personnel and Pay processes, including the core personnel actions that 

drive payroll management, for the more than 500,000 Active Duty, Reserve, and 

Guard members of the Air Force. Air Force-IPPS will directly enable synchronization of data, improve personnel asset visibility for combatant commanders, reduce 

payroll errors, and streamline clean audit compliance. It was initiated in fiscal year 

2009 and is planned for full operational capability by October 2016. Air Force-IPPS 

is expected to replace 22 legacy information technology platforms reducing current 

annual system total cost of ownership from $110 million to $65 million. Air ForceIPPS will replace the Air Force’s pay operations currently conducted on the Defense 

Joint Military Pay System and will reduce today’s 85,000 annual pay cases requiring manual processing by 75 percent and improve payroll timeliness from 93 percent 

to 97 percent. The Air Force is currently planning to release the Request for Proposal May 2012. 

We are building on internal Air Force and independent audits by advancing our 

major IT efforts to deliver capabilities in more manageable steps. This is done within our broader efforts to adjust our IT modernization and sustainment spending reviews and certifications. As we review and certify our IT systems to comply with 

section 2222 of title 10, audit readiness is a key evaluation factor for both modernization and sustainment of financial and financial feeder systems. 

We recognize the challenges in front of us. We have put into action people, process, and system changes to achieve audit readiness and improve management discipline in our financial business processes. We have developed and achieved key interim milestones and continue to develop business systems acquisition and engineering strategies in accordance with relevant laws. While we certainly see moderate 

risk and many challenges ahead, we are strongly committed to achieving the 2014 

Statement of Budgetary Resources audit goal and the ultimate goal of full 

auditability by 2017. We appreciate this subcommittee’s interest and advice in our 

audit readiness efforts and look forward to continuing to work with you in achieving 

auditable financial statements for the U.S. Air Force. 

Senator MCCASKILL. Mr. Khan? 

STATEMENT OF ASIF A. KHAN, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. KHAN. Good afternoon, Chairman McCaskill. I am here today 

to discuss the status of financial management improvements and 

business transformation in DOD. 

At the outset, I would like to thank the subcommittee for holding 

this hearing and acknowledge the importance of focusing attention 

on actions needed to meet difficult challenges. 

30 

Effective financial management and reporting are important for 

DOD decisionmakers and their accountability for their stewardship 

of Federal funds. Financial management is integral to other DOD 

business operations such as acquisition, logistics, and supply chain 

management, that provide crucial support to the DOD mission and 

it depends on business information systems to store, compile, process, and report reliable and auditable data. 

In my testimony today, I will provide GAO’s perspectives on the 

financial management weaknesses that impede DOD’s progress towards auditability and efforts to resolve them and the difficulties 

DOD is experiencing in implementing business information systems to support its financial improvement. My testimony is based 

on our work at DOD. 

DOD’s FIAR plan, the plan’s semiannual updates, and the FIAR 

guidance, establish a strategy, track progress, and provide instructions for DOD military and other components’ achievement of 

auditability. Interim milestones mark components’ progress towards the ability to produce a full set of auditable financial statements. Congress has mandated DOD audit readiness by fiscal year 

2017, and Defense Secretary Panetta has now accelerated to fiscal 

year 2014 a major milestone towards that objective, an auditable 

SBR. 

DOD leaders have shown commitment to improving DOD’s financial management, and its components are taking action in response 

to our recommendations. Yet, much remains to be done. We have 

found problems that continue to impede progress, including deficiencies in processes and controls, missed interim milestones, and 

premature assertions of audit readiness. 

In 2011, we reported on the difficulties of DOD components in 

producing an auditable SBR. For example, two assessable units we 

selected for review, the Navy and the Air Force, did not fully follow 

the FIAR guidance and the work did not support their conclusions 

of audit readiness. In our review of the Army’s military payroll 

processes, staff was not able to locate documentation needed to 

support payments to Active Duty military personnel. We found deficiencies in the Navy’s attempt to reconcile its fund balance with 

those in the Treasury records, a key step in preparing the SBR. 

The Marine Corps has not been able to receive an opinion on its 

SBR due to a lack of supporting documentation. The Marine Corps 

has made progress in remediating many of the weaknesses identified in the fiscal year 2010 audit, and audit efforts continue on the 

SBR for fiscal year 2012. 

Regarding business transformation, DOD has said that it considers a successful implementation of its ERPs critical to transforming its business operations, addressing longstanding weaknesses, and ensuring that DOD meets its auditability goals. We 

have reported that several ERPs have cost overruns and time slippages. In 2011, we reported that assessment of Army and Air Force 

accounting systems found operational problems, gaps in capabilities 

that required manual work-arounds, and training that was not focused on system operations. As a result, financial services staff had 

difficulty using these systems to perform daily operations. Our own 

assessment of these systems had similar results. 

31 

1The Chief Financial Officers Act of 1990, Pub. L. No. 101.576, title III, § 303, 104 Stat. 2838, 

2849 (Nov. 15, 1990), initially required annual audited financial statements of certain DOD components and activities, but the Government Management Reform Act of 1994, Pub. L. No. 103– 

356, § 405, 108 Stat. 3410, 3415 (Oct. 13, 1994), expanded the annual requirement to department-wide financial statements beginning with fiscal year 1996, which at the time had to be 

prepared no later than March 1, 1997. See 31 U.S.C. § 3515. 2 An agency’s general fund accounts are those accounts in the U.S. Treasury holding all Federal money not allocated by law to any other fund account. GAO, High-Risk Series: An Update, 

GA0–11–278 (Washington, DC: Feb. 16, 2011). 3DOD, Secretary of Defense Memorandum, ‘‘Improving Financial Information and Achieving 

Audit Readiness,’’ October 13, 2011. 4Pub. L. No. 111–84, § 1003(a), (b), 123 Stat. 2190, 2439–40 (Oct. 28, 2009). 

GAO also reported in 2011 on weaknesses in DOD enterprise architecture and business processes that affect DOD’s auditability. 

While DOD and the military departments largely follow DOD’s 

business process reengineering guidance to assess business system 

investments, they have not yet performed the key step of validating 

assessment results. DOD has taken corrective actions in response 

to our recommendations, and we have work underway to evaluate 

its continuing efforts. 

In closing, we are encouraged by the sustained commitment of 

the DOD leadership. Duty components now have the responsibility 

to implement the FIAR plan and respond to our recommendations 

and to implement our recommendations and those of the IG. That 

must be followed through with actions in full accordance with the 

FIAR guidance, and business systems following the best practice 

and sustained progress over the long-term will be needed for full 

auditability. To support the subcommittee’s oversight, GAO will 

continue monitoring and reporting on DOD’s financial management 

improvement efforts. 

Madam Chairman, this concludes my prepared statement. I will 

be pleased to answer any questions that you or others may have. 

Thank you. 

[The prepared statement of Mr. Khan follows:] 

PREPARED STATEMENT BY ASIF A. KHAN

Chairman McCaskill, Ranking Member Ayotte, members of the subcommittee: 

It is a pleasure to be here today to discuss the status of the Department of Defense’s (DOD) efforts to improve its financial management and related business operations and to achieve audit readiness. DOD has been required to prepare department-wide financial statements and have them audited since 1997 but through 2011 

has not been able to meet this requirement.1 On October 13, 2011, the Secretary 

of Defense directed the department to achieve audit readiness for the Statement of 

Budgetary Resources (SBR) for General Fund 2 activities by the end of fiscal year 

2014 3 as an interim milestone toward meeting the mandate in the National Defense 

Authorization Act (NDAA) for Fiscal Year 2010 to achieve full audit readiness for 

DOD’s complete set of financial statements by the end of 2017.4 Given the Federal 

Government’s fiscal challenges, it is more important than ever that Congress, the 

administration, and Federal managers have reliable, useful, and timely financial 

and performance information, particularly for the government’s largest department. 

Today, I will discuss DOD’s progress toward: (1) achieving the goals of an 

auditable SBR by fiscal year 2014 and a complete set of auditable financial statements by fiscal year 2017, including the development of interim milestones for both 

audit readiness goals, (2) acquiring and implementing new enterprise resource programs and other critical financial management systems, (3) reengineering business 

processes and instituting needed controls, and (4) implementing a comprehensive 

business enterprise architecture and transition plan, and improved investment control processes. My statement today is primarily based on our prior work related to 

the department’s efforts to achieve audit readiness, implement modernized business 

systems and a business enterprise architecture, and reengineer its business processes. In addition, we are providing information on DOD’s updated plans for achieving auditability presented at a February 2012 briefing. Specifically, we are preVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
32 

5Office of the Secretary of Defense (Comptroller), Accelerated FIAR Plan, presented to the 

staff of the House Committee on Oversight and Government Reform, February 14, 2012. 6 In a disclaimer of opinion, the auditor does not express an opinion on the financial statements. A disclaimer of opinion is appropriate when the audit scope is not sufficient to enable 

the auditor to express an opinion, or when there are material uncertainties involving a scope 

limitation—a situation where the auditor is unable to obtain sufficient appropriate audit evidence. 

senting a comparison of key milestones in the February 2012 DOD briefing 5 that 

outlined its plans to accelerate the timeframe to achieve SBR auditability with 

DOD’s May 2011 Financial Improvement and Audit Readiness (FIAR) plan. We also 

conducted interviews with DOD officials about the February 2012 briefing. We did 

not independently verify information contained in the February 2012 briefing with 

DOD or any of its components or agencies. Our work on which this testimony is 

based was conducted in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe the evidence obtained provides 

a reasonable basis for our findings and conclusions based on our audit objectives. 

Additional information on our scope and methodology is available in previously 

issued products. 

BACKGROUND

According to the fiscal year 2013 President’s budget, DOD accounts for about 57 

percent of the discretionary Federal budget authority. (See figure 1.) 

For fiscal year 2011, of the 24 agencies covered by the Chief Financial Officers 

Act of 1990 (CFO Act), DOD was the only agency to receive a disclaimer of opinion 

on all of its financial statements.6 The DOD Inspector General (IG) reported that: 

• the department’s fiscal year 2011 financial statements would not substantially conform to generally accepted accounting principles; 

• DOD’s financial management and feeder systems were unable to adequately support material amounts on the financial statements; and 

• longstanding material internal control weaknesses identified in prior audits continued to exist, including material weaknesses in areas such as financial management systems, Fund Balance with Treasury, Accounts Receivable, and General Property, Plant, and Equipment. 

In 2005, the DOD Comptroller first prepared the Financial Improvement and 

Audit Readiness (FIAR) Plan for improving the department’s business processes. 

The FIAR Plan is DOD’s strategic plan and management tool for guiding, moniVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB

418rms1.eps
33 

7Pub. L. No. 111–84, sec. 1003(b). 

8Pub. L. No. 111–84, sec. 1003(a)(2). 

9 An assessable unit can be any part of the financial statements, such as a line item or a class 

of assets (e.g., civilian pay or military equipment). a class of transactions. or it can be a process 

or a system that helps produce the financial statements. 10 10GAO, Department of Defense: Financial Management Improvement and Audit Readiness 

Efforts Continue to Evolve. GA0–10–1059T (Washington, DC: Sept. 29, 2010). 11Pub. L. No. 112–81, § 1003, 125 Stat. 1298, 1555 (Dec. 31, 2011). 

toring, and reporting on the department’s financial manage111ent improvement efforts. As such, the plan communicates progress in addressing the department’s financial management weaknesses arid achieving financial statement auditability. In 

accordance with the NDAA for Fiscal Year 2010, DOD provides reports to relevant 

congressional committees on the status of DOD’s implementation of the FIAR Plan 

twice a year—no later than May 15 and November 15.7

The NDAA for Fiscal Year 2010 also mandated that the FIAR Plan include the 

specific actions to be taken to correct the financial management deficiencies that impair the department’s ability to prepare timely, reliable, and complete financial 

management information.8 In May 2010, the DOD Comptroller issued the FIAR 

Guidance to implement the FIAR Plan. The FIAR Guidance provides a standardized 

methodology for DOD components to follow for achieving financial management improvements and auditability. The FIAR Guidance requires DOD components to identify and prioritize their business processes into assessable units,9 and then prepare 

a Financial Improvement Plan (FIP} for each assessable unit in accordance with the 

FIAR Guidance. Many of the procedures required by the FIAR Guidance are consistent with selected procedures for conducting a financial audit, such as testing internal controls and information system controls. In September 2010, we reported 

that the department needed to focus on implementing its FIAR Plan and that the 

key to successful implementation would be the efforts of the DOD military components and the quality of their individual FIPs.10

A FIP serves as a framework of steps and documentation requirements for both 

planning and implementing the FiAR Guidance. For example, civilian and military 

pay are two assessable units for which DOD components such as the Army, Navy, 

and Air Force are expected to develop and implement FIPs in accordance with the 

FIAR Guidance. The steps required for these plans include assessing processes, controls, and systems; identifying and correcting weaknesses; assessing, validating, and 

sustaining corrective actions; and ultimately achieving audit readiness. After a component’s management determines that an assessable unit is ready for audit, both 

the DOD Comptroller and the DOD Inspector General (IG) review the related FIP 

documentation to determine if they agree with management’s conclusion of audit 

readiness. 

DOD intends to progress toward achieving financial statement auditability by executing the FIAR Guidance methodology for groups of assessable units across four 

waves. Under the FIAR Plan, successful execution of the FIAR Guidance methodology for groups of assessable units across these waves is intended to result in the 

audit readiness of various components’ financial statements through fiscal year 

2017. The first two waves of the FIAR Plan focus on achieving the DOD Comptroller’s interim budgetary priorities, which DOD believes should lead to an auditable 

SBR. The third wave focuses on accountability for DOD’s mission-critical assets, and 

the fourth wave focuses on the remaining assessable units constituting DOD’s complete set of financial statements. 

As mentioned earlier, the Secretary of Defense directed the department to achieve 

audit readiness for the SBR for General Fund activities by the end of fiscal year 

2014. The NDAA for Fiscal Year 2012 reinforced this directive by requiring that the 

next FIAR Plan Status Report—to be issued in May 2012—include a plan, with interim objectives and milestones for each military department and the defense agencies, to support the goal of SBR audit readiness by 2014.11 The NDAA for Fiscal 

Year 2012 also requires the plan to include process and control improvements and 

business systems modernization efforts necessary for the department to consistently 

prepare timely, reliable, and complete financial management information. 

The SBR is the only financial statement predominantly derived from an entity’s 

budgetary accounts in accordance with budgetary accounting rules, which are incorporated into generally accepted accounting principles (GAAP) for the Federal Government. The SBR is designed to provide information on authorized budgeted spending authority reported in the budget of the U.S. Government (President’s budget), 

including budgetary resources, availability of budgetary resources, and how obligated resources have been used. 

34 

12DOD Directive 5118.5, ‘‘Defense Finance and Accounting Service’’ (Nov. 26, 1990). 13GAO, Department of Defense: Further Actions Needed to Institutionalize Key Business System Modernization Management Controls, GA0–11–684 (Washington, DC: June 29, 2011). 14GA0–11–684. 15Pub. L. No.111–84, § 1072 (amending 10 U.S.C. 2222). 

Overview of DOD’s Accounting and Business Operations 

In November 1990, DOD created the Defense Finance and Accounting Service 

(DFAS) as its accounting agency to consolidate, standardize, and integrate finance 

and accounting requirements, functions, procedures, operations, and systems.12 The 

military services continue to perform certain finance and accounting activities at 

each military installation. These activities vary by military service depending on 

what the services retained and the number of personnel they transferred to DFAS. 

As DOD’s accounting agency, DFAS is critical to DOD auditability as it records 

transactions in the accounting records, prepares thousands of reports used by managers throughout DOD and by Congress, and prepares DOD-wide and service-specific financial statements. The military services play a vital role in that they authorize most of DOD’s expenditures and are the source of most of the financial information that DFAS uses to make payroll and contractor payments. The military services 

also have responsibility for most of DOD’s assets and the related information needed 

by DFAS to prepare annual financial statements required under the CFO Act. 

To support its operations, DOD performs an assortment of interrelated and interdependent business functions, such as logistics, procurement, health care, and financial management. As we have previously reported, the DOD systems environment 

that supports these business functions has been overly complex, decentralized, and 

error prone, characterized by: (1) little standardization across the department; (2) 

multiple systems performing the same tasks and storing the same data; and (3) the 

need for data to be entered manually into multiple systems. For fiscal year 2012, 

the department requested about $17.3 billion to operate, maintain, and modernize 

its business systems. DOD has reported that it relies on 2,258 business systems, including 335 financial management systems, 709 human resource management systems, 645 logistics systems, 243 real property and installation systems, and 281 

weapon acquisition management systems. 

Importance of Business Enterprise Architecture and Reengineering Business Proc- esses 

For decades, DOD has been challenged in modernizing its timeworn business systems. Since 1995, GAO has designated DOD’s business systems modernization program as high risk. In June 2011, we reported that the modernization program had 

spent hundreds of millions of dollars on an enterprise architecture and investment 

management structures that had limited value.13 As our research on public and private sector organizations has shown, two essential ingredients to a successful systems modernization program are an effective institutional approach to managing information technology (IT) investments and a well defined enterprise architecture.14

For its business systems modernization, DOD is developing and using a federated 

business enterprise architecture, which is a coherent family of parent and subsidiary architectures, to help modernize its nonintegrated and duplicative business 

operations and the systems that support them. 

Section 1072 of the NDAA for Fiscal Year 2010 requires that programs submitted 

for approval under DOD’s business system investment approach be assessed to determine whether or not appropriate business-process reengineering efforts have 

been undertaken. The act further states that these efforts should ensure that the 

business process to be supported by the defense business system modernization will 

be as streamlined and efficient as practicable and the need to tailor commercial offthe-shelf systems to meet unique requirements or incorporate unique interfaces has 

been eliminated or reduced to the maximum extent practicable.15

CHALLENGES IN ACHIEVING AUDIT READINESS

GAO’s recent work highlights the types of challenges facing DOD as it strives to 

attain audit readiness and reengineer its business processes and systems. DOD 

leadership has committed DOD to the goal of auditable financial statement and has 

developed FIAR Guidance to provide specific instructions for DOD components to 

follow for achieving auditability incrementally. The department and its components 

also established interim milestones for achieving audit readiness for various parts 

(or assessable units) of the financial statements. These efforts are an important step 

forward. The urgency in addressing these challenges has been increased by the recent efforts to accelerate audit readiness time frames, in particular attaining audit 

readiness for the department’s SBR by fiscal year 2014. Our September 2011 report 

35 

16GAO, DOD Financial Management: Improvement Needed in DOD Components’ Implementation of Audit Readiness Effort, GA0–11–851 (Washington, DC: September 13, 2011). 17GA0–11–851. 18GA0–11–851. 19 In addition to requiring audit readiness of the SBR, the Secretary’s memo also directed the 

DOD Comptroller to increase emphasis on accountability for assets; execute a full review of the 

department’s financial controls over the next 2 years and establish interim goals for assessing 

progress; ensure mandatory training for audit and other key financial efforts, and establish a 

pilot certification program for financial managers; appropriately resource efforts to meet these 

goals; and meet the legal requirement for full financial statement audit readiness by 2017. 

highlights the types of challenges DOD may continue to face as it strives to attain 

audit readiness, including instances in which DOD components prematurely asserted audit readiness and missed interim milestones.16 Also, DOD’s efforts over the 

past couple of years to achieve audit readiness for some significant SBR assessable 

units have not been successful. However, these experiences can serve to provide lessons for DOD and its components to consider in addressing the department’s 

auditability challenges. 

DOD Component Compliance with FIAR Guidance Is Crucial to Ensuring Audit 

Readiness 

DOD’s ability to achieve department-wide audit readiness is highly dependent on 

its military components’ ability to effectively develop and implement FIPs in compliance with DOD’s FIAR Guidance. However, in our September 2011 report, we identified several instances in which the components did not prepare FIPs that fully 

complied with the FIAR Guidance, resulting in premature assertions of audit readiness. 

Specifically, as we reported in September 2011, the FIAR Guidance provides a 

reasonable methodology for the DOD components to follow in developing and implementing their FIPs.17 It details the roles and responsibilities of the DOD components, and prescribes a standard, systematic approach that components should follow to assess processes, controls, and systems, and identify and correct weaknesses 

in order to achieve auditability. When DOD components determine that sufficient 

financial improvement effort have been completed for an assessable unit in accordance with the FIAR Guidance and that the assessable unit is ready for audit, the 

FIP documentation is used to support the conclusion of audit readiness. Thus, complying with the FIAR Guidance can provide a consistent, systematic means for DOD 

components to achieve and verify audit readiness incrementally. 

We found that when DOD components did not prepare FIPs that fully complied 

with the FIAR Guidance, they made assertions of audit readiness prematurely and 

did not achieve interim milestones.18 While the components initially appeared to 

meet some milestones by asserting audit readiness in a timely manner, reviews of 

supporting documentation for the FIPs of two assessable units and full audits of the 

Marine Corps’ SBR revealed that the milestones had not been met because the assessable units were not actually ready for audit. For example, the Navy asserted 

audit readiness for its civilian pay in March 2010 and the Air Force asserted audit 

readiness for its military equipment in December 2010. However, we reported that 

neither component had adequately developed and implemented their FIPs for these 

assessable units in accordance with the FIAR Guidance and were therefore not 

ready for audit. The Marine Corps first asserted financial audit readiness for its 

General Fund SBR on September 15, 2008. The DOD IG reviewed the Marine Corps’ 

assertion package and on April 10, 2009, reported that the assertion of audit readiness was not accurate, and that its documentation supporting the assertion was not 

complete. GAO has made prior recommendations to address these issues. DOD has 

generally agreed with these recommendations and is taking corrective actions in response. 

Reported DOD Progress toward Audit Readiness for the Statement of Budgetary Resources 

The Secretary of Defense’s direction to achieve audit readiness for the SBR by the 

end of 2014 necessitated that DOD’s components revise some of their plans and put 

more focus on short-term efforts to develop accurate data for the SBR in order to 

achieve this new accelerated goal.19 In August 2011, DOD’s military components 

achieved one milestone toward SBR auditability when they all received validation 

by an independent public accounting firm that their Appropriations Receipt and Distribution—a section of the SBR—was ready for audit. In addition, the November 

2011 FIAR Plan Status Report indicated that the Air Force, achieved audit readiness for its Fund Balance with Treasury (FBWT). 

36 

20 According to the February 2012 accelerated plan, the seven defense agencies and Other Defense Organizations that are already sustaining SBR audits are the Defense Finance and Accounting Service(DFAS), Defense Contract Audit Agency (DCAA), TRICARE Management Activity-Contract Resource Management, Defense Commissary Agency, Medicare Eligible Retiree 

Healthcare Fund, Military Retirement Fund, and the DOD Office of the Inspector General. 21GAO, DOD Financial Management: The Army Faces Significant Challenges in Achieving 

Audit Readiness for Its Military Pay, GA0–12–501T (Washington, DC: March 22, 2012). 22GAO, DOD Financial Management: Ongoing Challenges with Reconciling Navy and Marine 

Corps Fund Balance with Treasury, GA0–12–132 (Washington, DC: Dec. 20, 2011). 23GAO, DOD Financial Management: Marine Corps Statement of Budgetary Resources Audit 

Results and Lessons Learned, GA0–11–830 (Washington, DC: Sept. 15, 2011). 24DOD Inspector General, Active Duty Military Personnel Accounts Were Generally Valid and 

Secure, but DOD May have Made Improper Payments, D–2011–093 (Arlington, VA: July 27, 

2011); GAO, Military Pay: The Defense Finance and Accounting Service-Indianapolis Could Improve Control Activities over Its Processing of Active Duty Army Military Personnel Federal 

Payroll Taxes, GA0–09–557R (Washington, DC: June 18, 2009); Military Pay: Hundreds of Battle-Injured GWOT Soldiers Have Struggled to Resolve Military Debts, GA0–06–494 (Washington, DC: Apr. 27, 2006}; Military Pay: Army National Guard Personnel Mobilized to Active 

Duty Experienced Significant Pay Problems, GA0–04–89 (Washington, DC: Nov. 13, 2003}. 25GAO, DOD Financial Management: The Army Faces Significant Challenges in Achieving 

Audit Readiness for Its Military Pay, GA0–12–406 (Washington, DC: Mar. 22, 2012). 

Further, in a February 2012 briefing on its accelerated plans, DOD indicated that 

7 of 24 material general fund Defense Agencies and Other Defense Organizations 

are either already sustaining SBR audits or are ready to have their SBRs audited.20

These accomplishments represent important positive steps. Nevertheless, achieving 

audit readiness for the military components’ full SBRs is likely to poses significant 

challenges based on the longstanding financial management weaknesses and audit 

issues affecting key SBR assessable units. Our recent reports highlight some of the 

difficulties that the components have experienced recently related to achieving an 

auditable SBR, including: 

• the Army’s inability to locate and provide supporting documentation for 

its military pay;21

• the Navy’s and Marine Corps’ inability to reconcile their Fund Balance 

with Treasury accounts; 22 and • the Marine Corps’ inability to provide sufficient documentation to auditors of its SBR.23

To achieve SBR audit readiness by 2014, DOD and its components need accelerated, yet feasible, well-developed plans for identifying and correcting weaknesses in 

the myriad processes involved in producing the data needed for the SBR. While 

DOD has developed an accelerated FIAR Plan to provide an overall view of the department’s approach for meeting the 2014 goal, most of the work must be carried 

out at the component level. 

Army’s Inability to Accurately Account for Military Pay 

The Army’s active duty military payroll, reported at $46.1 billion for fiscal year 

2010, made up about 20 percent of its reported net outlays for that year. As such, 

it is significant to both Army and DOD efforts to achieving auditability for the SBR. 

For years, we and others have reported continuing deficiencies in the Army’s military payroll processes and controls.24 Moreover, other military components such as 

the Air Force and Navy share some of these same military payroll deficiencies. 

In March 2012, we reported that the Army could not readily identify a complete 

population of its payroll accounts for fiscal year 2010.25 DOD’s FIAR Guidance 

states that identifying the population of transactions is a key task essential to 

achieving audit readiness. However, the Army and DFAS-Indianapolis (DFAS–IN), 

which is responsible for accounting, disbursing, and reporting for the Army’s military personnel costs, did not have an effective, repeatable process for identifying the 

population of active-duty payroll records. For example, it took 3 months and repeated attempts before DFAS–IN could provide a population of servicemembers who 

received active duty Army military pay in fiscal year 2010. Further, because the 

Army does not have an integrated military personnel and payroll system, it was 

necessary to compare the payroll file to active Army personnel records. However, 

DOD’s central repository for information on DOD-affiliated personnel did not have 

an effective process for comparing military pay account files with military personnel 

files to identify a valid population of military payroll transactions. 

In addition, the Army and DFAS–IN were unable to provide documentation to 

support the validity and accuracy of a sample of fiscal year 2010 payroll transactions we selected for review. For example, DFAS–IN had difficulty retrieving and 

providing usable Leave and Earnings Statement files and the Army was unable to 

locate or provide supporting personnel documents for a statistical sample of fiscal 

37 

26GA0–12–132. 

year 2010 Army military pay accounts. At the end of September 2011, 6 months 

after we had provided them with our sample of 250 items, the Army and DFAS– 

IN were able to provide complete documentation for only 2 of the sample items and 

provided only partial documentation for another 3 items; they were unable to provide any documentation for the remaining 245 sample items. 

At the time of our report, the Army had several military pay audit readiness efforts planned or under way. Timely and effective implementation of these efforts 

could help reduce the risk of DOD not achieving the SBR audit readiness goal of 

2014. However, most of these actions are in the early planning stages. Moreover, 

these initiatives, while important, do not address: (1) establishing effective processes 

and systems for identifying a valid population of military payroll records; (2) ensuring Leave and Earnings Statement files and supporting personnel documents are 

readily available for verifying the accuracy of payroll records; (3) ensuring key personnel and other pay-related documents that support military payroll transactions 

are centrally located, retained in servicemember Official Military Personnel Files, 

or otherwise readily accessible; and (4) requiring the Army’s Human Resources 

Command to periodically review and confirm that servicemembers’ Official Military 

Personnel File records are consistent and complete to support annual financial audit 

requirements. GAO has made prior recommendations to address these issues. DOD 

has agreed with these recommendations and is taking corrective actions in response. 

Navy’s and Marine Corps’ Inability to Reconcile Fund Balance with Treasury 

A successful audit of the SBR is dependent on the ability to reconcile an agency’s 

Fund Balance with Treasury (FBWT) with the Treasury records. FBWT is an account that reflects an agency’s available budget spending authority by tracking its 

collections and disbursements. Reconciling a FBWT account with Treasury records 

is a process similar in concept to reconciling a check book with a bank statement. 

In December 2011, we reported that neither the Navy nor the Marine Corps had 

implemented effective processes for reconciling their FBWT.26

The Navy and the Marine Corps rely on the DFAS location in Cleveland (DFAS– 

CL) to perform their FBWT reconciliations. We found numerous deficiencies in 

DFAS processes that impair the Navy’s and the Marine Corps’s ability to effectively 

reconcile their FBWT with Treasury records, including the following: 

• There are significant data reliability issues with the Defense Cash Accountability System (DCAS), which records daily collections and disbursements activity. The Navy and Marine Corps rely on DCAS to reconcile their 

FBWT to Treasury records. 

• DFAS–CL did not maintain adequate documentation for the sample items 

we tested to enable an independent evaluation of its efforts to research and 

resolve differences. 

• DFAS–CL recorded unsupported entries (plugs) to force the Navy and 

Marine Corps appropriation balances to agree with those reported by Treasury instead of investigating and resolving differences between these two 

services’ appropriation balances and those maintained by Treasury. 

Navy, Marine Corps, and DFAS–CL officials acknowledged that existing FBWT 

policies and procedures were inadequate. Navy and DFAS–CL officials stated that 

the base realignment and closure changes from 2006 through 2008 resulted in loss 

of experienced DFAS–CL personnel and that remaining staff have not received the 

needed training. In response to our recommendations, the Navy is developing a plan 

of action and milestones intended to address the Navy’s audit readiness weaknesses, 

including FBWT required reconciliations. 

Difficulty in Auditing the Marine Corps’ Statement of Budgetary Resources 

The Marine Corps received disclaimers of opinion from its auditors on its fiscal 

year 2010 and 2011 SBRs because it could not provide supporting documentation 

in a timely manner, and support for transactions was missing or incomplete. Further, the Marine Corps had not resolved significant accounting and information 

technology (IT) system weaknesses identified in the fiscal year 2010 SBR audit effort. 

The auditors also reported that the Marine Corps did not have adequate processes 

and controls, including systems controls, for accounting and reporting on the use of 

budgetary resources. Further, the Marine Corps could not provide evidence that reconciliations for key accounts (such as FBWT) and processes were being performed 

on a monthly basis. The auditors also identified ineffective controls in key IT systems used by the Marine Corps to process financial data. During fiscal year 2011, 

38 

27GA0–11–830. 28 CFO Act agencies’ financial management systems are required by the Federal Financial 

Management Improvement Act of 1996 (FFMIA) to comply with Federal financial management 

systems requirements, applicable Federal accounting standards, and the U.S. Government 

Standard General Ledger at the transaction level, Pub. L. No. 104–208, div. A, title VIII, § 803, 

110 Stat. 3009, 3009–390 (Sept. 30, 1996). 29GAO, Standards for Internal Control in the Federal Government (Supersedes AIMD–98– 

21.3.1), AIMD–00–21.3.1, (Washington, DC: November 1999). 

however, the Marine Corps was able to demonstrate progress toward auditability. 

For example, its auditors confirmed that as of October 2011, the Marine Corps had 

fully implemented 50 out of 139 fiscal year 2010 audit recommendations. 

The results of the audit for fiscal year 2010 provided valuable lessons on preparing for a first-time financial statement audit. In our September 2011 report, we 

identified five fundamental lessons that are critical to success.27 Specifically, the 

Marine Corps’ experience demonstrated that prior to asserting financial statement 

audit readiness, DOD components must: (1) confirm completeness of populations of 

transactions and address any abnormal transactions and balances; (2) test beginning balances; (3) perform key reconciliations; (4) provide timely and complete response to audit documentation requests; and (5) verify that key IT systems are compliant with the Federal Financial Management Improvement Act of 1996 28 and are 

auditable. GAO has made prior recommendations to address these issues. DOD has 

generally agreed with these recommendations and is taking corrective actions in response. 

These issues are addressed in GAO’s Standards for Internal Control in the Federal Government 29 and DOD’s FIAR Guidance. During our audit, Navy, Army, and 

Air Force FIP officials stated that they were aware of the Marine Corps lessons and 

were planning to, or had, incorporated them to varying degrees into their audit 

readiness plans. 

Accelerated Plans for SBR Are in Progress 

In its November 2011 FIAR Plan, DOD provided an overall view of it accelerated 

FIAR Plan for achieving audit readiness of its SBR by the end of fiscal year 2014. 

In its February 2012 briefing, DOD recognized key factors that are needed to 

achieve auditability such as the consistent involvement of senior leadership as well 

as the buy-in of field commanders who ultimately must implement many of the 

changes needed. The plan also provided interim milestones for DOD components 

such as the Army, Navy, Air Force, Defense Logistics Agency, and other defense 

agencies. Acceleration substantially compresses the time allotted for achieving some 

of these milestones. For example, the May 2011 FIAR Plan Status Report indicated 

that the Air Force had planned to validate its audit readiness for many SBR-related 

assessable units in fiscal year 2016 and that its full SBR would not be ready for 

audit until2017. However, the February 2012 briefing on the accelerated plans indicated that most of the Air Force’s SBR assessable units will be audit-ready in fiscal 

years 2013 or 2014. These revised dates reflect the need to meet the expedited audit 

readiness goal of 2014. (See figure 2.) 

39 

30 An ERP system is an automated system using commercial off-the-shelf software consisting 

of multiple, integrated functional modules that perform a variety of business-related tasks such 

as general ledger accounting, payroll, and supply chain management. 31DOD Inspector General, Navy Enterprise Resource Planning System Does Not Comply With 

the Standard Financial Information Structure and. U.S. Government Standard General Ledger, 

DOD IG–2012–051 (Arlington, VA: Feb. 13, 2012). 

As discussed earlier, the key to audit readiness is for DOD components to effectively develop and implement FIPs for SBR assessable units, and to meet interim 

milestones as they work toward the 2014 goal. According to Navy officials, the Navy 

plans to prepare a FIP for each of several assessable units that make up the SBR. 

For example, for its SBR, Navy officials told us they have identified assessable units 

for appropriations received, and for various types of expenditures for which funds 

are first obligated and then disbursed, such as military pay, civilian pay, contracts, 

and transportation of people. The Air Force will prepare FIPs for assessable units 

similar to those of the Navy. Army officials told us they are taking a different approach from the Navy. They said that instead of developing FIPs for discrete assessable units constituting the SBR, they are preparing only one FIP for one audit readiness date for the Army’s entire SBR, an approach similar to that of the Marine 

Corps. 

EFFECTIVE IMPLEMENTATION OF BUSINESS SYSTEMS IS CRITICAL

For years, DOD has been developing and implementing enterprise resource planning (ERP) systems, which are intended to be the backbone to improved financial 

management.30 DOD considers the successful implementation of these ERP systems 

critical to transforming its business operations and addressing longstanding weaknesses in areas such as financial and supply-chain management and business systems modernization. DOD officials have also stated that these systems are critical 

to ensuring the department meets its mandated September 30, 2017, goal to have 

auditable department wide financial statements. However, as we recently reported, 

six of these ERP systems are not scheduled to be fully deployed until either fiscal 

year 2017 or the end of fiscal year 2016.31

The DOD IG reported that the Navy developed and approved deployment of the 

Navy ERP System without ensuring that the system complied with DOD’s Standard 

Financial Information Structure (SFIS) and the U.S. Government Standard General 


418rms2.eps
40 

32DOD Inspector General, Navy Enterprise Resource Planning System Does Not Comply With 

the Standard Financial Information Structure and U.S. Government Standard General Ledger, 

DOD IG–2012–051 (Arlington, VA: Feb. 13, 2012). 33GAO, DOD Financial Management: Implementation Weaknesses in Army and Air Force 

Business Systems Could Jeopardize DOD’s Auditability Goals, GA0–12–134 (Washington, DC: 

Feb. 28, 2012). 34GA0–12–134. 35GA0–11–684. 

Ledger.32 The DOD IG further stated that as a result, the Navy ERP System, which 

is expected to manage 54 percent of the Navy’s obligation authority when fully deployed, might not produce accurate and reliable financial information. 

Two ERP systems—the Army’s General Fund Enterprise Business System 

(GFEBS) and the Air Force’s Defense Enterprise Accounting and Management System (DEAMS)—are general ledger systems intended to support a wide range of financial management and accounting functions. However, DFAS users of these systems told us that they were having difficulties using the systems to perform their 

daily operations. Problems identified by DFAS users included interoperability deficiencies between legacy systems and the new ERP systems, lack of query and ad 

hoc reporting capabilities, and reduced visibility for tracing transactions to resolve 

accounting differences. For example: 

• Approximately two-thirds of invoice and receipt data must be manually 

entered into GFEBS from the invoicing and receiving system due to interface problems. Army officials explained that the primary cause of the problem was that the interface specification that GFEBS is required by DOD 

to use did not provide the same level of functionality as the interface specification used by the legacy systems. At the time of our review, Army officials stated that they are working with DOD to resolve the problem, but 

no time frame for resolution had been established. 

• DEAMS did not provide the capability—which existed in the legacy systems—to produce ad hoc query reports that could be used to perform data 

analysis needed for day-to-day operations. DFAS officials noted that when 

DEAMS did produce requested reports, the accuracy of those reports was 

questionable. According to DFAS officials, they are currently working with 

DEAMS financial management to design the type of reports that DFAS 

needs. 

While we were told that as of February 2012, the Army and Air Force had corrective actions under way to address identified deficiencies, specific timelines had not 

been developed so that progress could be monitored.33

In February 2012, we reported that independent assessments of four ERPs—the 

Army’s GFEBS and Global Combat Support System (GCSS-Army), and the Air 

Force’s DEAMS and Expeditionary Combat Support System (ECSS)—identified 

operational problems, such as deficiencies in data accuracy, inability to generate 

auditable financial reports, the need for manual workarounds, and training.34 DOD 

oversight authority limited the deployment of GFEBS and DEAMS on the basis of 

the results of the independent assessments. However, in June 2011, DOD authorized continued deployment of GFEBS and delegated further GFEBS deployment decisions to the Under Secretary of the Army. 

In addition to functional issues, we found that training was inadequate. According 

to DFAS personnel as of February 2012, the training they received for GFEBS and 

DEAMS did not fully meet their needs. DFAS personnel informed us that the training focused on an overview of GFEBS and DEAMS and how the systems were supposed to operate. While this was benefiCial in identifying how GFEBS and DEAMS 

were different from the existing legacy systems, the training focused too much on 

concepts rather than the skills needed for DFAS users to perform their day-to-day 

operations. GAO has made prior recommendations to address these issues. DOD has 

generally agreed with these recommendations and is taking corrective actions in response. 

CHALLENGES IN DEVELOPING AND IMPLEMENTING DOD’S BUSINESS ENTERPRISE

ARCHITECTURE AND INVESTMENT CONTROL PROCESSES

Improving the department’s business environment through efforts such as DOD’s 

business enterprise architecture and improved business systems management is an 

important part of helping DOD achieve auditability. In June 2011, we reported that 

DOD had continued to make progress in implementing a comprehensive business 

enterprise architecture, transition plan, and improved investment control processes.35 However, we also reported that long standing challenges had yet to be adVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
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36DOD’s business enterprise architecture approach calls for a federated approach, in which 

the architecture consists of a family of coherent but distinct member architectures that conform 

to an overarching corporate or parent architecture. 37GA0–11–684. 38These best practices are identified in GAO IT investment management guidance. See GAO, 

Information Technology Investment Management: A Framework for Assessing and Improving 

Process Maturity, GA0–04–394G (Washington, DC: Mar. 2004). 39See, for example, GAO, Information Technology: Architecture Needed to Guide Modernization of DOD’s Financial Operations, GA0–01–525 (Washington, DC: May 17, 2001); DOD Business Systems Modernization: Improvements to Enterprise Architecture Development and Implementation Efforts Needed, GA0–03–458 (Washington, DC: Feb. 28, 2003); Business Systems 

Modernization: DOD Continues to Improve Institutional Approach, but Further Steps Needed, 

GA0–06–658 (Washington, DC: May 15, 2006); Business Systems Modernization: Strategy for 

Evolving DOD’s Business Enterprise Architecture Offers a Conceptual Approach, but Execution 

Details Are Needed, GA0–07–451 (Washington, DC: Apr. 16, 2007); Business Systems Modernization: DOD Needs to Fully Define Policies and Procedures for Institutionally Managing Investments, GA0–07–538 (Washington, DC: May 11, 2007); DOD Business Systems Modernization: Progress in Establishing Corporate Management Controls Needs to Be Replicated Within 

Military Departments, GA0–08–705 (Washington, DC: May 15, 2008); DOD Business Systems 

Modernization: Recent Slowdown in Institutionalizing Key Management Controls Needs to Be 

Addressed, GA0–09–586 (Washington, DC: May 18, 2009); Organizational Transformation: Military Departments Can Improve Their Enterprise Architecture Programs, GA0–11–902 (Washington, DC, Sept 26, 2011). 

dressed. Specifically, we reported that while DOD continued to release updates to 

its corporate enterprise architecture, the architecture had yet to be augmented by 

a coherent family of related subsidiary architectures.36 For example, we reported 

that while each of the military departments had developed aspects of a business architecture and transition plan, none of them had fully developed a well defined business enterprise architecture and transition plan to guide and constrain business 

transformation initiatives.37

We also reported in June 2011 that DOD continued to improve its business system investment management processes, but that much remained to be accomplished 

to align these processes with investment management practices associated with individual projects and with portfolios of projects.38 With regard to individual projects, 

DOD and the military departments all had documented policies and procedures for 

identifying and collecting information about IT projects and systems to support their 

business system investment management processes. However, neither DOD nor the 

military departments had fully documented policies and procedures for selecting a 

new investment, reselecting ongoing investments, integrating funding with investment selection, or management oversight of IT projects and systems. With regard 

to portfolios of projects, DOD and the Departments of the Air Force and Navy had 

assigned responsibility for managing the development and modification of IT portfolio selection criteria. However, neither DOD nor the military departments had 

fully documented policies and procedures for creating and modifying IT portfolio selection criteria; analyzing, selecting, and maintaining their investment portfolios; reviewing, evaluating, and improving the performance of their portfolios; or conducting post implementation reviews. In addition, while DOD largely followed its 

certification and oversight processes, we reported that key steps were not performed. For example, as part of the certification process, DOD assessed investment 

alignment with the business enterprise architecture, but did not validate the results 

of this assessment, thus increasing the risk that decisions regarding certification 

would be based on inaccurate and unreliable information. 

Since 2001, we have made recommendations to improve DOD’s business architecture, enterprise transition plan, and business system investment management.39

DOD has generally agreed with these recommendations and is taking corrective actions in response. It is essential that DOD implement our recommendations aimed 

at addressing these longstanding challenges, as doing so is critical to the department’s ability to establish the full range of institutional management controls needed for its financial management as well as its overall business systems modernization high-risk program. We have ongoing work to evaluate the department’s efforts 

to comply with the NDAA for Fiscal Year 2012, as amended, including updating our 

evaluations of DOD’s comprehensive business enterprise architecture and transition 

plan and improved investment control processes. 

DOD HAS BEGUN PERFORMING BUSINESS-PROCESS REENGINEERING ASSESSMENTS

Section 1072 of the NDAA for Fiscal Year 2010 requires that new DOD programs 

be assessed to determine whether or not appropriate business-process reengineering 

efforts have been undertaken. The act further states that these efforts should ensure that: (1) the business process to be supported by the defense business system 

42 

40Pub. L. No.111–84, § 1072. 41GA0–11–684. 

modernization will be as streamlined and efficient as practicable; and (2) the need 

to tailor commercial off-the-shelf systems to meet unique requirements or incorporate unique interfaces has been eliminated or reduced to the maximum extent 

practicable.40 In June 2011, we reported that, for those investments we reviewed, 

DOD and the military departments used DOD’s Business Process Reengineering 

Guidance (dated April 2011) to assess whether the investments complied with the 

business-process reengineering requirement.41 Consistent with the guidance, DOD 

and the military departments completed questionnaires to help them identify and 

develop approaches to streamlining and improving existing business processes. Once 

these assessments had been completed, the appropriate authorities asserted that 

business-process reengineering assessments had been performed. 

We also reported in June 2011 that while DOD and the military departments 

largely followed DOD’s guidance, they did not perform the key step of validating the 

results of these reengineering assessments to ensure that they, among other things, 

accurately assessed process weaknesses and identified opportunities to streamline 

and improve affected processes. The reason DOD did not follow key aspects of the 

certification process-primarily not validating assessment results-was attributed in 

part to unclear roles and responsibilities. According to military department officials 

responsible for the investments we reviewed, validation activities did not occur because DOD policy and guidance did not explicitly require them to be performed. In 

addition, there was no guidance that specified how assessments should be validated. 

According to DOD officials, the oversight and designated approval authorities did 

not validate the DOD level assessments and assertions because DOD policy and 

guidance had not yet been revised to require these authorities to do so. We have 

work underway to evaluate DOD’s efforts to improve its business system investment 

process, including its efforts to address the act’s business process reengineering requirement. GAO has made prior recommendations to address these issues. DOD has 

agreed with these recommendations and is taking corrective actions in response. 

CONCLUDING OBSERVATIONS

In closing, DOD has demonstrated leadership and sustained commitment since 

the first issuance of its FIAR Plan in 2005 and through improvements and responsiveness to our recommendations since then. DOD has made progress through the 

FIAR Guidance, with the development of a methodology for implementing the FIAR 

strategy. Full compliance with the guidance can provide a consistent, systematic 

process to help DOD components achieve and verify audit readiness. Without full 

compliance, as we have seen in our work, components may assert audit readiness 

while process deficiencies prevent validation, require corrective actions, and delay 

an audit for another fiscal year. 

Automated information systems are essential for modern accounting and recordkeeping. DOD is developing its ERP systems as the backbone of its financial management improvement and they are critical for transforming its business operations. 

To be fully successful, implementation of ERP systems should be consistent with an 

effective corporate enterprise architecture and the development of streamlined business processes. DOD officials have stated that these systems are critical to ensuring 

that the department meets its mandated September 30, 2017, goal to have auditable 

department-wide financial statements. However, implementation has been delayed 

by deficiencies in performance and the need for remedial corrective actions. DOD 

components will evaluate cost-effective modifications to legacy systems and implement any necessary changes. According to DOD officials, for the ERP systems that 

will not be fully deployed prior to the audit readiness goals, the DOD components 

will need to identify effective workaround processes or modifications to legacy systems that will enable audit readiness. 

DOD faces considerable implementation challenges and has much work to do if 

it is to meet the goals of an auditable SBR by fiscal year 2014 and a complete set 

of auditable financial statements by fiscal year 2017. It is critical that DOD continue to build on its current initiatives. Oversight and monitoring will also play a 

key role in making sure that DOD’s plans are implemented as intended and that 

lessons learned are identified and effectively disseminated and addressed. Absent 

continued momentum and necessary future investments, the current initiatives may 

falter, similar to previous well-intended, but ultimately failed, efforts. 

We will continue to monitor the progress and provide feedback on the status of 

DOD’s financial management improvement efforts. We currently have work in 

progress to assess: (1) the FIAR Plan’s risk management process for identifying, asVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
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sessing, and addressing risks that may impede DOD’s ability to achieve the 2017 

financial audit readiness goal; (2) DOD’s funds control in relation to the reliability 

of its financial statements; (3) the schedule and cost of Army’s GCSS; (4) components’ efforts to prepare for SBR and full financial statement audits; and (5) DOD’s 

actions in response to our recommendations. As a final point, I want to emphasize 

the value of sustained congressional interest in the department’s financial management improvement efforts, as demonstrated by this subcommittee’s leadership. 

Chairman McCaskill, Ranking Member Ayotte, and members of the subcommittee, 

this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. 

GAO CONTACTS AND STAFF ACKNOWLEDGMENTS

If you or your staff have any questions about this testimony please contact me 

at (202) 512–9869 or khana@gao.gov. Contact points for our Offices of Congressional 

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

staff who made key contributions to this testimony include Valerie Melvin, Director; 

Cindy Brown Barnes, Assistant Director; Mark Bird, Assistant Director; Kristi 

Karls; Michael Holland, Chris Yfantis, and Maxine Hattery. 

Senator MCCASKILL. Thank you, Mr. Khan. 

I think that Secretary Panetta’s directive for 2014 is one of those 

good news/bad news things. I think it is good news because it really gets everyone leaning forward in a way that perhaps they had 

not been. The bad news is I am worried about this manual workaround. 

I would like all of you to address this, and you can decide whether or not it is the CMO or whether it is the Assistant Secretaries 

that do this. I need a yes or no about whether or not you are envisioning a manual work-around for a one-time fix to get to the 2014, 

and can you make any representations today on the record that you 

will avoid a manual work-around, that you would be more willing 

to say we cannot do it than do a manual work-around that is very 

expensive and does not solve any long-term problem? We will start 

with the Air Force and work our way down the table. 

Dr. MORIN. Senator McCaskill, I can assure you there will be 

some manual workarounds required, but we will not do a largescale, army of auditors, fully manual approach. We will rely on our 

existing financial systems, admittedly some of which date back to 

the Vietnam war, but we will rely on a series of systems that have 

differing degrees of controls in them. In some cases, we will have 

to do manual reconciliations between those systems because they 

do not interface. That will be labor-intensive, but it is not thousands of people type labor-intensive. We will try to strike a careful 

balance in assessing internal controls and finding out where we can 

rely on them. In some cases, there will be a level of manual workaround, but it will not be an enterprise-scale manual work-around 

which is, I think, what you are talking about here. 

Senator MCCASKILL. I will probably circle back once I get 

everybody’s answer because I think we need to try to get our arms 

around this in terms of what costs are going to be. 

Ms. MATIELLA. It did create some manual workarounds for us. 

Basically we have to do more cleanup in the legacy system. It was 

cleanup that we had not planned on doing, that we did not feel like 

we needed to do because it, the program, was basically going to 

cancel. It is not going to cancel with the due date that is now 2014. 

So we have to do the cleanup now, but that is a one-time fix. So 

once you get that cleanup done, those beginning balances correct, 

those opening balances correct, they are correct forever. It is a oneVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
44 

time fix. It is a manual work-around. It will not create continuing 

work for us. So it is something that we are planning for and that 

we have budgeted for, and we believe that is doable by 2014 and 

will not be something that will set us back going into 2017 at all. 

Ms. COMMONS. For the Department of the Navy, we feel that the 

manual work-arounds will be at a minimum. First of all, our ERP 

is well-deployed. We only have two more commands that we are 

going to deploy, and we will have completed our program of record. 

What we are finding in our ERP is that the internal controls built 

into the system are, in fact, working. We tested some transactions 

in the system and we know that the controls around the system are 

fairly good. 

Also, for our legacy systems, we have always built our transactions down at the transaction level. So we know we have some 

systems issues to work there, but we feel that we are working 

those issues and that we are moving forward in the right direction. 

For our reconciliations, especially with FBWT, we are working 

with the DFAS to automate that process. It is a manual process at 

this point, but we think that we are making good progress and that 

we will be there within the timeframe for the auditable SBR, as 

well as 2017. 

So we really believe that we are looking at our business processes end-to-end and that we are trying to make improvements in 

those processes for the long-term, not just to achieve an auditready SBR, but long-term improvement. 

Senator MCCASKILL. Secretary Hale? 

Mr. HALE. If I could summarize, I would say that there will be 

some manual work-arounds. We see them as temporary. The General Fund Enterprise Business System (GFEBS), the Army system, 

for example. We have had some problems. We are doing some manual work-arounds. The Army is engaged, along with DFAS, in fixing the business process problems that led to those, and I expect 

that we will be back on track without manual work-arounds, I hope 

fairly quickly. As Dr. Morin said, there will be some issues the Air 

Force’s DEAMS, because they will not have it in place, but they 

will get DEAMS at some point. 

So I think yes for some, but I expect them to be temporary, and 

I would echo what was said here. We are not going to hire an army 

of auditors to do this manually. That is not sustainable and it is 

not our plan. 

Senator MCCASKILL. Do you think before 2014, Secretary Hale, 

that you are going to be able to put a figure on what the manual 

work-arounds for a 2014 deadline are going to cost over and above 

what we would be expending had the deadline not been moved? 

Mr. HALE. We could try. I am reluctant to commit to that because it probably would not be as easy as it may sound. 

Senator MCCASKILL. No, I do not think it sounds easy. I think 

it sounds really hard. 

Mr. HALE. I think it would be difficult. 

Senator MCCASKILL. But the problem is if you do not do that 

analysis upfront, then you really are not making a sound management decision as to whether or not it is worth it to move up the 

date. 

45 

Mr. HALE. But I would argue strongly we need the pressure that 

is generated by the 2014 deadline. We need to pressurize, it is like 

turning an aircraft carrier. We have to be hard right or hard left. 

We have to get this organization moving, and I think this shorter 

deadline has done it. So if it drives us to some modest manual 

workarounds, so be it. I think we will get to the end game more 

quickly and save money sooner. 

I will think about whether or not we can quantify that, but I believe there are some qualitative benefits to the earlier goal that are 

significant. 

Senator MCCASKILL. I am not trying to pick a fight here about 

this. I really just genuinely want to have some sense of this. I 

think I am legitimately entitled to some skepticism because of the 

amount of monies that have been expended in this effort and the 

billions of dollars that clearly have not turned out to be wise investments in terms of what they have produced to date. 

What I do not want to have happen is—when you say a modest 

investment, ‘‘modest’’ needs context because I think most Americans would think that what you might consider modest might be 

a heck of a lot of scratch in order to meet this earlier deadline. 

I am glad that Secretary Panetta has done this overall. I think 

it is very positive because I do think it is going to help really push 

everyone as hard as they can possibly be pushed to get some of 

these problems resolved. But I want to make sure that we are not 

in the process being shortsighted. Frankly, it reminds me a little 

bit of Base Realignment and Closure (BRAC). Sometimes we have 

extremely high upfront costs for benefits that sometimes are exaggerated way down the line further than when everyone had been 

told they were. So I want to make sure we are not having one of 

those upfront expenditures that does not, in the long run, show 

that it is worth the investment. 

Mr. HALE. If I get to compare my cost to BRAC, I am in good 

shape. 

Senator MCCASKILL. Then it would be modest. You are safe with 

‘‘modest’’ if you compare it to BRAC. 

Mr. HALE. We spent $35 billion on the last BRAC round. We are 

not going to be in that ball park. 

We will try to think about that problem systematically and get 

back to you. 

Senator MCCASKILL. I have a number of other questions, but I 

will defer to my colleague, Senator Manchin, because I know he 

has some questions he wants to ask. I will come back for more 

after. 

Senator MANCHIN. Thank you, Madam Chairman. I appreciate it 

so much and all of your service. I appreciate your all being here. 

I want to apologize for running back and forth to committee meetings, but that is sometimes how it happens here. 

Secretary Hale, if I may, I am sure you are scrutinizing contracting very closely since it accounts for about 55 percent of the 

DOD budget in 2011, and there are so many examples of fraud, 

waste, and abuse. 

I recently met with the National Guardsmen who say that a contractor knowingly exposed them to sodium dichromate in Iraq during the cleanup of the Qarmat Ali water treatment plant, which I 

46 

think you all know about. There is even a recent DOD report that 

faults this contractor for not protecting the nearly 1,000 soldiers 

who guarded the site, and West Virginia had a number of those soldiers. The report states that the contractor recognition of, and response to, the health hazard represented by sodium dichromate 

contamination, once identified at the Qarmat Ali facility, was delayed. The delay occurred because the contractor, KBR, did not 

fully comply with the occupational safety and health standards required by the contract. As a result, a great number of servicemembers and DOD civilian employees were exposed to sodium dichromate and for longer periods. 

This was a $28 billion contract to restore this plant and the surrounding oil fields. There is ongoing litigation, so I am not going 

to go into all the details, but soldiers have died. Many more have 

lasting illnesses because of the exposure. I talked to one of the widows yesterday. 

The most troubling part of this contract is the indemnity clause 

which I could absolutely not believe at all that this Government 

would enter into a $28 billion contract with an indemnity clause 

that lets the contractor totally off the hook. Even if the contractor 

knowingly does something wrong like expose soldiers to a known 

carcinogen, it means that the taxpayers will foot the blatant contractor abuse. 

So my question is simply this, sir. Do we have any contracts like 

this in Afghanistan? 

Mr. HALE. Senator Manchin, I am not familiar enough to answer 

that question. It is a good one. I can tell you that we have the wellbeing of our soldiers, sailors, airmen, and marines fully in mind. 

But I am going to need to answer for the record or get somebody 

who is more of an expert on this to come talk to you. 

Senator MANCHIN. The bottom line. It took so long for this contract to be revealed to what was going on and why such a blatant 

protection of a contractor that was charging $28 billion and held 

totally harmless—totally harmless—by this Government. It is just 

hard to explain to these widows. I have so many people involved 

and exposed on this. I would like to see and know if we have some 

contracts that we might have out there that have these types of indemnity clauses or hold harmless. 

To Mr. Khan, if I may. Your testimony is important because 

DOD accounts for 57 percent of discretionary spending, more than 

all of the agencies combined. The fiscal future of our Nation, I do 

not think I need to tell you, depends on us getting this right. 

I said throughout all of these posture hearings I am concerned 

that we are cutting 100,000 servicemembers by 2017, but no one 

can tell me how many contractors we are cutting. I cannot even get 

an accurate figure on how many we have. We have more contractors in Afghanistan and Iraq than we do American troops. I am 

told that we have approximately 150,000 contractors compared to 

about 90,000 men and women in uniform. It makes common sense 

to me as an American, which I think we all love our military and 

we are so appreciative of what they do, that given the choice between the soldier and an overpaid contractor performing the same 

mission, that I would choose the soldier. 

47 

1GAO, Military Operations: Implementation of Existing Guidance and Other Actions Needed 

to Improve DOD’s Oversight and Management of Contractors in Future Operations, GAO–08– 

436T (Washington, DC: Jan. 24, 2008). 2GAO, Warfighter Support: Cultural Change Needed to Improve How DOD Plans for and 

Manages Operational Contract Support, GAO–10–829T (Washington, DC: June 29, 2010). 3GAO, Defense Acquisitions: Further Actions Needed to Improve Accountability for DOD’s Inventory of Contracted Services, GAO–12–357 (Washington, DC: Apr. 6, 2012). 

Let me tell you when I was down visiting our troops in Afghanistan, I had soldiers coming to me from my State of West Virginia, 

and I would say, ‘‘are you signing back up?’’ They said, ‘‘no, no. I 

am going to work for that person. I can get so much more money.’’ 

I said, ‘‘if that job was not available, would you stay in the Service? 

Probably so.’’ Something is wrong, sir, desperately wrong. I just 

cannot even believe it. 

I would like to know from you, sir, just offer your perspective on 

the overdependence on contractors at DOD. 

Mr. KHAN. That is an area really I am not an expert or specialist 

in. I can respond to that for the record. But I share your concerns 

on the overdependence on the contractors. 

[The information referred to follows:] 

The Department of Defense (DOD) has relied extensively on contractors to provide 

needed services, including those in support of operations in Iraq and Afghanistan. 

Over the past 15 years, we have made numerous recommendations intended to improve DOD’s management and oversight of contractors in deployed locations. For example, in 2008, we recommended that DOD determine the appropriate balance of 

contractors and military personnel as it shapes the force for the future.1 As part 

of this effort, DOD would need to comprehensively examine the support it will require contractors to provide in future operations and the core capabilities the department believes it should not be relying on contractors to perform. Given the longstanding and recurring nature of the issues identified, in June 2010 we called for 

a cultural change that emphasized an awareness of contractor support throughout 

the department.2

While there are benefits to using contractors to perform services for the government, our work has shown that reliance on contractors to support core missions can 

place the government at risk of becoming overly reliant on contractors to perform 

functions deemed inherently governmental or those that are closely associated with 

inherently governmental functions. Our work has identified the need for DOD to obtain better data on its contracted services to enable it to make more strategic workforce decisions and ensure that it maintains appropriate control of government operations. 

DOD has taken steps to gain better insights into the number of contractors and 

the functions they perform, but its efforts have had mixed success to date. Examples 

of our recent findings in this area include the following: 

• As we reported in April 2012, DOD has made incremental improvements 

to its processes for compiling and reviewing statutorily required inventories 

of contracted services, but DOD acknowledged a number of factors that limited the utility, accuracy, and completeness of the inventory data.3 The department does not expect to fully collect required data on contractor manpower as part of the inventory until fiscal year 2016. Further, we found 

that during the military departments’ review of the fiscal year 2009 inventories, the Army and Air Force identified 1,935 and 91 instances, respectively, of contractors performing inherently governmental functions. In 8 of 

the 12 Army and Air Force cases we reviewed, contractors continued to perform functions identified by the military departments as inherently governmental. We found no evidence that the Navy commands we contacted had 

conducted the required reviews of the inventories to determine, among 

other matters, whether contractors were performing inherently governmental functions. 

• In 2008, DOD designated the Synchronized Predeployment and Operational Tracker (SPOT) as its system for tracking specific information on 

certain contracts and associated personnel in Iraq and Afghanistan. While 

recent efforts have been made to improve SPOT’s tracking of contractor personnel, in reports issued annually since 2008, including most recently in 

48 

4GAO, Iraq and Afghanistan: Agencies Are Taking Steps to Improve Data on Contracting but 

Need to Standardize Reporting, GAO–12–977R (Washington, DC, Sept. 12, 2012). 5GAO, Human Capital: DOD Needs Complete Assessments to Improve Future Civilian Strategic Workforce Plans, GAO–12–1014 (Washington, DC, Sept. 27, 2012). 6Pub. L. No. 112–81, § 936 (2011) (codified at 10 U.S.C. § 2330a). 

September 2012, we reported DOD lacked reliable data and systems to report on its contracts and contractor personnel in Iraq and Afghanistan.4

• As we reported in September 2012, DOD’s 2010–2018 workforce plan did 

not include an assessment of the appropriate mix of military, civilian, and 

contractor personnel or an assessment of the capabilities of each of these 

workforces.5 DOD is directed by statute to use this plan, among other 

things, to make determinations on the most appropriate and cost-efficient 

mix of military, civilian, and contractor personnel to perform the department’s mission.6 Therefore, without an assessment of the appropriate workforce mix and capabilities, DOD is not well positioned to make determinations on its current and future use of contractors. 

Senator MANCHIN. Let me give some ratios to all of you and see 

if it makes sense to any of you. 

World War I, we had 1 contractor for every 24 soldiers. 

World War II, we had 1 contractor for every 7 soldiers. 

Vietnam, 1 contractor for every 5 soldiers. 

The Balkans and Iraq, it was 1-to-1. 

Currently in Afghanistan, we have more than a 1-to-1 ratio. 

I do not know how the growing reliance that DOD has—how you 

choose to deploy your resources. I do not know how you would do 

that in an effective and efficient manner. 

Mr. HALE. Senator Manchin, what we need to do is think about 

the criteria for jobs. There are some jobs that ought to be done by 

contractors, and I fear that sometimes we demonize our contractor 

workforce in a way that is not helpful. We could not fight effectively without them. But there are certainly jobs that need to be 

done by Federal civilians and by military personnel. I will not say 

we have that right or perfect, but we are certainly looking at it. I 

can tell you, for example, that our contractor dollars from 2012 to 

2013 go down in similar levels to our civilian workforce and our 

military workforce. So you are seeing some downturn in contractors. 

But I would caution against just blanket statements that we do 

not want contractors. There are jobs they should do, temporary 

jobs, jobs with special skills. Auditing is a good example. We do not 

have the skills in DOD to do audits well. They know how to do it 

better in the private sector. That is temporary work, at least we 

hope so. We need to hire people temporarily to do that and we are. 

So I would urge you to avoid blanket pronouncements, but I accept 

the fact that we need to look at the mix. 

Senator MANCHIN. Let me ask you a direct question then, sir. 

Can you get me an answer on the difference of pay between the 

front-line service person that is doing exactly the same job as the 

soldier in uniform? 

Mr. HALE. First, I do not think any contractor is doing exactly 

the same job as a front-line soldier. 

Senator MANCHIN. When a soldier tells me with his own mouth 

and he says I am going to go do exactly what I am doing now, 

whether he is protecting, whether he—— 

Mr. HALE. I will ask for help from—— 

49 

Senator MANCHIN. I just want an answer. I cannot get an answer 

from anybody. 

Mr. HALE. I do not think they are doing exactly the same thing. 

Senator MANCHIN. I beg to differ with you, sir. They are. If you 

will just go to the front lines and talk to the soldiers. 

Mr. WESTPHAL. Senator, we have done an analysis and a review 

of the number of contractors, and we are doing this very complex 

analysis, which is what you are getting at here, of what is a 

uniquely governmental function that we need to have either a soldier or a civilian employed by the Government do the job or a contractor. In that report, we have been able to identify the number 

of full-time equivalents that we are contracting for the generating 

force and what we have for the operating force. So we have some 

fidelity. It is not precise on the number of contractors both in what 

we call the generating force, which is all the support elements to 

our operating force, and our operating force. Then what is the 

equivalence in dollars. 

To do that analysis, we have gone and looked at exactly what you 

just asked, which is what are the benefits and pay and all of the 

things that accrue to a civilian or to a soldier and what does the 

same thing mean for a contractor, and we are finishing up that report. 

I know, Senator McCaskill, Madam Chair, you had a hearing on 

the subject of contracting. So I know there is a great deal of interest on this, and we are trying to get those answers. 

Senator MANCHIN. Can I get a comparison on the pay? All I am 

asking for is a comparison on the pay. Even if you do not think 

they do the exact same job, as close to a job as the two would do, 

if I could get that. 

Can you tell me how many contractors you are cutting? If you 

are proposing to cut 100,000 men and women in uniform by 2017, 

can you tell me how many contractors you are prepared to cut? 

Mr. WESTPHAL. We will get you that. 

[The information referred to follows:] 

This year for the first time the Army will be able to consciously make tradeoffs 

between military personnel, civilians, and contractors in a strategic way. This will 

replace the current process of just managing contracted services in the year of execution. 

In order to gain more fidelity on the value of contractors, the Army is using the 

Contractor Manpower Reporting Application (CMRA) to provide cost and manpower 

data. By utilizing the CMRA and its Panel for Documenting Contractors process in 

support of its budget submission, the Army will be able to project future year contractor numbers. This newly-established process for making projections will enable 

the Army, for the first time, to start to consciously make tradeoffs between military, 

civilians, and contractors in a strategic way, rather than simply continuing the current process of just managing contracted services in the year of execution. We are 

not there yet, but expect to move in this direction as the Department of Defense 

implements CMRA on an enterprise basis. 

In the near-term, by implementing the CMRA, the Army has an accurate count 

of the number of contractor used in fiscal year 2011. This fiscal year 2011 data will 

provide the baseline for the Army’s future year contractor projections and will inform future year budget estimates. This will result in more accurate future year 

contractor estimates, beginning with forecasting the number of contractors for fiscal 

years 2012 to 2014. 

These numbers although more accurate are still just estimates, because unless 

specifically authorized by statute, most contracted services are performance-based 

and not personnel-services-based. Therefore, these contracted services are not managed or controlled based on manpower but through funding constraints applied in 

the year of execution. 

50 

As the military and the civilian forces downsizes, the Army anticipates making 

comparable reductions in numbers of contractor personnel. The reduced funding levels projected for the Army through 2017 will require deliberate and sustained planning and analysis to ensure that the Army’s military, civilian, and contractor workforce is properly balanced, adequate, and affordable. 

Additionally, you have asked for a cost comparison of contractor costs and military 

and civilian personnel costs. The CMRA data is what will allow the Army to make 

more accurate contractor cost comparisons with civilian and military personnel cost. 

When comparing costs of military, civilian, and contractor labor, it is imperative 

to compare the fully-burdened costs to Department of Defense and the Federal Government, as opposed to base pay alone. As detailed in the Office of the Secretary 

of Defense’s Directive Type Memorandum 09–007, dated January 29, 2010, a full 

cost comparison of total compensation, benefits, training, retirement, and other cost 

considerations must be utilized when making workforce mix decisions. 

The fully-burdened costs of soldiers and civilians vary greatly because of factors 

like location, skill level, and years of service. The fully-burdened cost of an Active 

Army officer can range from $119,000 to $331,000 and the fully-burdened cost of an 

Active Army enlisted can range from $78,000 to $181,000. The fully-burdened cost 

of a General Service (GS) civilian can range from $33,000 to $202,000. For example, 

the average fully-burdened cost of an Active Army captain, pay grade O–3, is 

$166,000, while the average fully-burdened cost of a rank equivalent civilian, a GS– 

11, is $103,000. Contractor costs are even more variable and sensitive to factors 

such as location, type of service performed (e.g. Medical, Transportation, IT, etc.), 

skill level, availabilities due to different shifts, contractor leave policies, and overhead. To further complicate the comparison no direct military/civilian to contractor 

rank equivalency exists. The fully-burdened average unit cost of a Contractor ranges 

from $36,000 to $437,000. Therefore, any direct comparisons of military/civilian to 

contractor workforce cost should be addressed on a case-by-case basis. 

Senator MANCHIN. Thank you, sir. 

Senator MCCASKILL. Thank you. 

Senator Ayotte. 

Senator AYOTTE. Thank you very much, Madam Chair. 

I wanted to ask all of you, we have seen with the General Services Administration (GSA) the rightful public outrage and outrage 

from this Congress about the misuse of taxpayers’ funds, inappropriate use of taxpayers’ funds for mind readers and all kinds of 

things that is just completely unacceptable. Please tell me how we 

can assure that each of your departments has proper oversight and 

controls in place to make sure that that type of misuse of taxpayers’ funds never happens within DOD, please. 

Ms. MCGRATH. I will start. With regard to specifically the conferences, I can tell you that in the November timeframe, we completed a thorough review across DOD to ensure we had proper controls and policies in place for conferences, and each of the heads 

of components reviewed and attested to the Deputy Secretary that 

those were in place. 

Following what I will call the GSA incident, we have gone back 

out to all of our heads of components in the military and actually 

across DOD to once again, look and to assure that they have proper 

controls in place to make sure we have not missed anything. We 

asked for a review of all conferences that have occurred in the last 

2 years, and that is to be reported back to the Deputy Secretary 

on May 11. So we absolutely take this very seriously. Each of the 

components can attest to their specific actions and activities, if you 

like, but I can say that we are absolutely ensuring that we have 

proper controls in place so that things like that do not happen. 

Mr. WESTPHAL. If I could, the Secretary of the Army issued a directive over a year ago on this matter which is to look at all of the 

conferences done by the Department of the Army, the costs, and to 

51 

have a process by which conferences are approved. That was partly 

due to cost-cutting requirements that we had, but partly also to ensure that we were not doing anything excessive. So I think we can 

provide you that policy, that directive. I believe the Navy and the 

Air Force have adopted something similar. 

Senator AYOTTE. We would be very interested in receiving that. 

I think it is important. We have to be able to account to taxpayers. 

When I think about some of the reductions that you are asked to 

make, it would be completely unacceptable to find out that our taxpayers’ dollars were somehow going to conferences that were wasteful or somehow did not address core training important opportunities that are needed for our military. So, yes, I appreciate that you 

are looking at this, and we would love to see a copy of that. 

Mr. TILLOTSON. From the Department of the Air Force point of 

view, we have implemented similar policies. I think Ms. McGrath 

and Secretary Westphal have captured the thought. The Secretary 

issued guidance out to the field about a year ago. We have followed 

up since that time several times, and it has been reiterated, I can 

assure you, to all command levels as recently as last week to make 

sure that we are following diligently the policies we have already 

put on place, as well as collecting the information over the last 2 

years to support Ms. McGrath’s review. 

Mr. WORK. The Department of the Navy has a very similar thing, 

ma’am. What we have is a tiering system in which commanders at 

lower levels can, for example, approve conferences for maybe 

$100,000, but anything of great expense has to come all the way 

to either the Assistant Commandant of the Marine Corps or the 

Vice CNO, or in the case of the secretariat, to the Administrative 

Assistant who works for the Secretary. So like all of the other Services, there is a tiered system in which we monitor very closely, and 

we have flags. For example, if it goes to an area that might be considered a nice place to go, like Las Vegas, the first thing we always 

ask is why are you going to Vegas? If they cannot prove that that 

is the cheapest opportunity for taxpayers, then we deny it. 

Senator AYOTTE. I appreciate that and we certainly would like to 

see your policies and appreciate that this is something you have already put a focus on prior to this incident that was really a complete debacle. 

[The information referred to follows:] 

Mr. WESTPHAL. See attached memo. 

52 


418rms3.eps

SECRETARY OF THE ARMY 

WASHINGTON 

MEMORANDUM FOR SEE DISTRIBUTION 

1 4 OCT 2011 

SUBJECT: Army Directive 2011-20 (Department of the Army Conferences) 

1. It is imperative that the Department of the Army exercise strict fiscal responsibility in 

planning and executing our programs and activities, including conferences. Changing 

the "business as usual" mind set as it relates to conferences is the right thing to do and 

is even more imperative in the current environment of declining resources. Simply put, 

we must implement more cost-effective and efficient methods to train, plan, collaborate 

and disseminate information. Experience has shown that conferences are an expensive 

means of accomplishing these goals. When it is determined that only a conference will 

suffice to accomplish official business, I will hold you accountable for ensuring that all 

conference-related events comply with law, regulation and policy and for exercising 

strict fiscal discipline in organizing and administering the conference. 

2. The policy at enclosure 1 is effective immediately. It establishes conference 

approval authorities and applicability, defines key terms, clarifies processes, further 

emphasizes the need to instill fiscal restraint throughout the Army and designates the 

Administrative Assistant to the Secretary of the Army as the proponent for conference 

policy. Applicable references, a template for conference requests, computation 

examples and the format for semiannual reporting are at enclosures 2 through 5, 

respectively. 

3. In seeking to sponsor a conference, you will review and adhere strictly to all 

applicable law, regulation and policy, including the provisions of this directive. I charge 

each of you to consider how you can contribute to cost savings and the elimination of 

waste in conference planning. I expect you to disapprove conference requests that do 

not comply with this directive, and I have similarly instructed my Administrative Assistant 

for conferences submitted to her for approval. 

4. This directive supersedes Army Directive 2011-05 (Department of the Army 

Conferences, Symposia, Seminars and Meetings), dated 20 April 2011, and rescinds 

DA Memo 1-17 (HQDA Conferences, SympOSia, Seminars and Meetings), dated 

15 November 2006. 

5. Any questions regarding the enclosed policy and associated documents should be 

directed to the Office of the Administrative Assistant. 

Encls 
53 


418rms4.eps

SUBJECT: Army Directive 2011-20 (Department of the Army Conferences) 

DISTRIBUTION: 

Principal Officials of Headquarters, Department of the Army 

Commander 

U.S. Army Forces Command 

U.S. Army Training and Doctrine Command 

U.S. Army Materiel Command 

U.S. Army Europe 

U.S. Army Central 

U.S. Army North 

U.S. Army South 

U.S. Army Pacific 

U.S. Army Africa 

U.S Army Special Operations Command 

Military Surface Deployment and Distribution Command 

U.S. Army Space and Missile Defense Command/Army Forces Strategic Command 

Eighth U.S. Army 

U.S. Army Network Enterprise Technology Command/9th Signal Command (Army) 

U.S. Army Medical Command 

U.S. Army Intelligence and Security Command 

U.S, Army Criminal Investigation Command 

U.S. Army Corps of Engineers 

U.S. Army Military District of Washington 

U.S. Army Test and Evaluation Command 

U.S. Army Installation Management Command 

Superintendent, United States Military Academy 

Director, U.S. Army Acquisition Support Center 

CF: 

Commander, U.S. Army Accessions Command 

Executive Director, Army National Cemeteries Program 

Commander, U.S. Army Cyber Command 

Director, Army National Guard 

Director, Office of Business Transformation 

2 
54 


418rms5.eps

ARMY CONFERENCE POLICY 

1. Definitions. As defined by the Joint Federal Travel Regulations (JFTR)/Joint Travel 

Regulations (JTR), "conference" is a meeting, retreat, seminar, symposium or event that 

involves attendee travel. It also includes training activities that are defined as a 

"conference" under the provisions of 5 CFR § 410.404. Events included in this definition 

normally require registration, an agenda, and scheduled speakers or discussion. The 

definition does not include: 

• events necessary to carry out the statutory command and staff oversight functions 

of the Department of the Army (DA), including investigations, inspections, audits or 

site visits; 

• Service-endorsed training that has been approved through the Army Deputy Chief 

of Staff, G-3/5/7; and 

• regularly scheduled courses of instruction conducted at a Government or 

commercial training facility (for example, courses scheduled via the Army Training 

Requirements and Resources System); however, this exclusion does not apply to 

courses held in a non-training commercial facility, such as a hotel or conference 

center. 

For questions about whether an event is excluded, contact your Staff Judge Advocate 

or the Office of the Administrative Assistant. Requests for exceptions to policy should 

be submitted to the Office of the Administrative Assistant and must be fully justified. 

2. Applicability. This policy applies to the Active Army, the U.S. Army Reserve, the 

Army National Guard of the United States' and those organizations for which the 

Secretary of the Army is the designated Department of Defense (000) Executive Agent 

and for which the Army funds their activities. This policy does not apply to conferences 

sponsored by a Combatant Command or subordinate unified command headquarters 

for which the Secretary of the Army has been designated the Combatant Command 

Support Agent. 

3. General Responsibilities. Personnel will comply with law, regulation and policy 

applicable to conference planning, including the provisions for conference planning in 

the JFTR/JTR, specifically Appendix R (Conferences); DoD 5000.7-R (JOint Ethics 

Regulation (JER)); and all other pertinent regulations. Army personnel will familiarize 

themselves with these regulations and other travel policy guidelines before starting to 

plan a conference. Legal advisors in the Army are expected to assist their clients by 

providing thorough, accurate and consistent legal reviews. Further, all personnel are 

expected to strictly apply sound fiscal prinCiples throughout the conference planning and 

administration processes. 

1 Except when the planned conference will use State funds only, all participants will serve only in a State status, and the conference 

will be planned and conducted on State time and address only State topics of Interest. 

Army Directive 2011-20 Enclosure 1 
55 


418rms6.eps

4. Procedures for Conference Requests 

a. These conference request and approval procedures apply to all conferences 

sponsored or funded by any Army command, organization or activity, without regard to 

the approval authority of the conference. Approval authorities are defined in 

paragraph 8. 

b. All conference requests will be signed by a general officer or member of the 

Senior Executive Service and staffed through the chain of command to the appropriate 

Conference Approval Authority defined in paragraph 8. The Army officials signing and 

coordinating on the conference request submitted to the Conference Approval Authority 

are attesting to the accuracy of the statements in the request, including the cost-benefit 

analysis and cost estimates. 

c. The sponsoring Army command, organization or activity will submit a complete 

and fully coordinated conference request through the appropriate command structure no 

later than 90 days before the start date of the conference. If the proponent expects to 

acquire contractor support and/or facilities contracts, the conference request must be 

approved before contract award. Each Army command, organization or activity may put 

in place additional timelines to meet their specific milestones for approval or acquisition 

requirements. 

d. The template at enclosure 3 must be used for all conference requests. Failure 

to provide detailed information or explanations will result in disapproval of the request. 

Of particular note, requests shall provide: 

(1) A breakdown of attendees, including the rationale and criteria applied to 

scope the attendee population and the justification for the number of attendees. 

(2) Cost information in accordance with Assistant Secretary of the Army 

(Financial Management and Comptroller) guidance, dated 17 May 2011 (available at 

http://armypubs.army.mil/epubs/asa fmc collection 1.html). Specific cost elements are 

in the template. 

(3) A detailed and credible cost-benefit analysis, which includes an explanation 

of other options considered (video teleconference. train-the-trainer and so on), as well 

as information on site selection. Conference requests must include a certifying 

statement that the travel is essential and the objectives of the conference cannot be 

satisfactorily accomplished less expensively by correspondence, Web-based 

communications, teleconferencing or other appropriate means. Additionally. the 

JFTRlJTR require all individual travelers to justify all travel with a statement on their 

DD Form 1610 (Request and Authorization for TDY Travel of DOD Personnel) or in the 

Defense Travel System (DTS) that the ·Objective cannot be satisfactorily accomplished 

less expensively by correspondence, teleconferencing, Web-based communications or 

other appropriate means." 

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(4) A substantive agenda spanning the proposed conference from start to end; 

listing all planned speakers, programs, ceremonies and other activities; and specifying 

any after-hour events or activities. The agenda should provide planned or proposed 

locations for each event. Agendas that merely annotate "breakout sessions" are 

insufficient. If breakout sessions are planned, the agenda should explain the purpose 

and objectives of each breakout session. 

(5) A conference security assessment that contains: 

(a) A force protection assessment, including threat and vulnerability 

assessments for the conference facility site and any specific security requirements for 

the conference facility. For conferences held inside the National Capital Region (NCR), 

the Security and Safety Division (SSD-AT/FP), Office of the Administrative Assistant 

can assist with the assessment. For conferences outside the NCR, the local installation 

security or provost marshal office may provide technical expertise. Conferences held 

on Government or military installations may have different requirements than those in 

commercial facilities, so check applicable security regulations. 

(b) A statement indicating whether foreign government representatives will 

attend the conference and, if so, a statement that the conference sponsor has 

coordinated the screening of foreign national attendees with the Deputy Chief of 

Staff, G-2 and will comply with all procedures set forth in AR 380-10 (Foreign 

Disclosure and Contacts with Foreign Representatives). Coordination with the Deputy 

Chief of Staff, G-2 typically requires 120 days leadtime before the conference date. 

(c) A statement indicating whether the conference will involve classified 

information and, if so, the name and location of the secure U.S. military installation, 

other U.S. Government installation or cleared U.S. contractor facility where the 

conference will be held. Follow the procedures in AR 380-5 (Department of the Army 

Information Security Program) and coordinate directly with the Deputy Chief of 

Staff, G-2 if additional guidance is needed. 

(6) A legal review that addresses all fiscal, ethics, contracting and travel issues, 

including a comprehensive assessment of whether the conference complies with 

applicable regulations and DA policy. This review should provide sufficient legal advice 

to the approving official to make an informed decision on approval. Any legal objections 

must be mitigated before submission of the conference request. 

5. Selection of Conference Site 

a. The first choice for conference locations must always be military installations or 

other Govemment facilities. Organizations will maximize the use of Government-owned 

or Govemment-provided conference facilities. Military installations and Governmentowned facilities may not be ruled out as a conference venue solely because the facility 

is not available on the exact dates the sponsor desires to hold the conference; efforts 

must be made to adjust the conference scheduling to fit the availability of military or 

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Government facilities, when possible. If scheduling cannot be adjusted, a detailed 

explanation must be provided in the conference request. Additionally, military or 

Government facilities may not be ruled out simply because they do not offer the same 

refreshments, food options or lodging availability as commercial facilities. Further, while 

planning the conference, the size of the conference should take into account the 

capacity of Government facilities; efforts should be made to contain the size of 

conferences to the capacity of military or Government facilities nearest the majority of 

local attendees. 

b. Commercial facilities will be used only when they can be proven more 

economical, or when military or other Government facilities are unavailable when 

needed. If no military or Government-provided facility can meet conference 

requirements, the JFTRlJTR require that a minimum of 3 geographic sites be evaluated 

and considered for conferences with more than 30 attendees in a temporary duty (TDY) 

status before the selection of any 1 site for the conference, unless an overriding 

operational reason can be shown for holding the conference in a specific city. 

c. Factors to be considered when determining a geographic location to conduct a 

conference include, but are not limited to: 

(1) per diem expenses; 

(2) travel costs, including local travel and ground transportation; 

(3) distance to the majority of attendees (if one area has a significant 

concentration of attendees, that location generally will be the most cost-effective 

option); and 

(4) consideration of lower off-season rates or peak seasons. 

d. Once a particular city is chosen as the site of the conference, a minimum of 

three facilities in that city will be considered to ensure full and open competition. 

Factors that should be considered when determining the venue to conduct a conference 

include, but are not limited to: 

(1) participation in the Lodging Success Program (for more information, visit 

https:/Iwww.defensetraveJ.dod.mil/Docs/Fact Sheet Lodging.pdf); 

(2) inclusion on the national list of approved accommodations maintained by 

the Federal Emergency Management Agency (the Hotel-Motel National Master List is 

available at http://www usfaJema.gov/applications/hoteJl); 

(3) willingness to exempt taxes for lodging; 

(4) distance to the nearest major airport and free shuttle availability; 

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(5) cost of the venue (if commercial space is to be rented); and 

(6) availability of rooms at the established per diem rate. 

f. Each Army command, organization or activity will document, maintain and 

make available to The Inspector General or other interested parties a record of the 

conference site selection process, including the costs of each alternative site and venue 

considered. 

g. All applicable local pOlicies on site selection must be followed. For conferences 

to be held in the NCR, conference sponsors must coordinate through the Real Estate 

and Facilities Directorate, Office of the Administrative Assistant and obtain approval 

from the Director, Space Policy and Acquisition Division, Defense Facilities Directorate, 

Washington Headquarters Services to contract for short-term conference space inside 

the NCR. 

h. In addition to cost considerations, the selection of the conference site must be 

sensitive to public perception. The conference sponsor should avoid the appearance 

that public funds are being expended in a careless, wasteful or unnecessarily 

extravagant manner. No venue, however, may be categorically prohibited from 

selection solely because of its reputation, location or amenities. 

i. If a conference is justified as training and conducted on a recurring basis, the 

sponsoring command should seek to incorporate it into the institutional training domain, 

which includes Army centers and schools. 

6. Cost Contracting and Ethical Considerations. When a conference is determined to 

be necessary, the sponsoring command, organization or activity will adhere to strict 

fiscal controls and minimize costs. Accordingly, the conference sponsor must ensure 

the following: 

a. The length of the conference is strictly determined by mission requirements. 

Socials, golf tournaments, military balls or other ancillary activities will not be held 

during regularly scheduled duty hours or used as a basis to extend personnel in a TDY 

status. Award ceremonies held during a conference often may be considered official 

business, but in no case should an award ceremony extend the period for which a 

conference attendee will be in a TDY status. For example, an award ceremony will not 

be held in the evening if it would result in the extension of a conference attendee in TDY 

status for an extra day or delay the attendee's return to his/her permanent duty station. 

b. Conference attendees are limited to the minimum number necessary to 

accomplish the objectives of the conference. Accordingly, the sponsor must establish 

clear criteria for attendance and strictly limit the number of attendees. 

c. Appropriated funds may not be used to purchase conference mementos to 

distribute to attendees. 

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d. In most cases, honorariums and fees for speakers are limited to $2,000 a 

speaker. Refer to 000 7000.14-R (000 Financial Management Regulation), 

Volume 10, chapter 12, paragraph 1208 (Payments of Fees for Guest Speakers, 

Lecturers, and Panelists) for specific guidance on speaker fees. 

e. As a general rule, appropriated or nonappropriated funds are not authorized for 

refreshments. While serving light refreshments to conference attendees might be 

common business practice in private industry, and the JFTRlJTR authorizes light 

refreshments under very rare circumstances, Army policy is that appropriated or 

nonappropriated funds are not authorized to pay for light refreshments at Army-hosted 

conferences. Attendees may purchase refreshments at personal expense, which will 

not be reimbursable to the traveler by the Govemment. In some extenuating 

circumstances, a commercial facility may provide refreshments when such costs are 

both non-segregable from the cost of the facility rental (the cost of the rental is a fixed 

fee, which includes refreshments at no additional cost to the Govemment) and 

nonnegotiable (the facility will not negotiate to reduce the cost of the facility to the 

Govemment); however, this situation is rare. Non-segregable and nonnegotiable 

refreshments must be specifically addressed in the written legal review submitted with 

the conference request. Further, by signing the conference request, the signing official 

is attesting to the fact that the refreshments are truly non-segregable and 

nonnegotiable. 

f. Lodging and meals will not be authorized or provided at government expense to 

local attendees (those not in TOY status). This restriction does not authorize selecting a 

location outside the local commuting area solely to provide Govemment-furnished 

lodging and meals. 

(1) If meals are provided for personnel in a TOY status, the command or 

organization sponsoring the conference must identify the cost of each meal, whether 

included in a registration fee or contracted for separately; ensure that the appropriate 

proportional meal rate (PMR) is used; and issue a notice to all attendees to ensure that 

they correctly annotate travel vouchers. The cost of meals the Govemment provides 

must not exceed the per diem for that location. If a PMR is authorized, the cost of 

meals the Govemment provides plus the PMR must not exceed the per diem for that 

location. Examples are in enclosure 4. 

(2) Special consideration should be taken when attendees include both local 

attendees and those in TOY status. Meal breaks should be given to allow both local 

attendees and travelers the opportunity to purchase meals, or local attendees may be 

offered the opportunity to personally purchase nonreimbursable meals being provided to 

travelers. 

g. The JFTRlJTR specify the criteria under which an actual expense allowance 

(AEA) may be authorized. The competitive site selection process based on the 

JFTRlJTR should prevent the need for AEA except in very rare cases. If AEA is 

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authorized, it should be uniform (if possible) among personnel traveling at Government 

expense when they travel together or to the sarne location where AEA has been 

authorized. AEA should not be used to provide upgraded rooms or suites based solely 

on rank or grade. AEA is prescribed only on an individual trip basis and only after 

consideration of the existing facts of each case. Blanket authority prescribing an AEA 

for all travel to an area is prohibited, and AEA shall not be authorized as part of a 

"blanket" travel order. 

h. Conference planners should request the tax exemption of lodging for Federal 

employees and/or servicemembers during the conference selection process. 

Contracting officers can often negotiate the tax exemption into commercial contracts. 

Any approval to hold a conference with a commercial lodging establishment that refuses 

to accept Federal employee and/or servicemember tax exemption must break out the 

cost of lodging-related taxes for the total number of attendees and include that amount 

in its cost calculation to achieve either the best value or lowest cost for the conference. 

Contracts. The following provisions and guidelines apply: 

(1) All conference-related contracts must be signed by a warranted contracting 

officer or, when authorized, a Government purchase cardholder. When authorized and 

if the cost of the conference space is within the limits of the cardholder's purchasing 

authority, the Government purchase card may be used to rent conference space. 

Requirements will not be split to reduce costs to within the limits of the cardholder's 

authority. Personnel cannot make any commitment until a written agreement is signed 

by a warranted contracting officer or, when authorized, by a Government purchase 

cardholder. Support contractors are not authorized to enter into contracts on behalf of 

the Govemment for conference arrangements. 

(2) An agreement signed by anyone other than a warranted contracting officer 

or, when authorized, a Govemment purchase cardholder, is an unauthorized 

commitment. A Government employee who lacks authority to bind the Govemment 

could be held personally liable if he/she signs an agreement for conference facilities or 

for other conference support. Additionally, Govemment employees are prohibited from 

directing or recommending that a support contractor take any action that purports to 

bind the Government in any way. 

(3) A Government employee will not commit the Government to the use of any 

facility, sign any agreement or otherwise obligate the Govemment for conference 

facilities or support before approval of the conference by the conference approval 

authority. Personnel may visit facilities, discuss space needs, collect pricing and 

develop cost estimates, tentatively reserve space (only if at no cost and without any 

liability to the Govemment) or request other conference-related information. No 

contract or task order related to conference requirements will be awarded and no funds 

will be obligated for a conference until that conference has been approved by the 

Conference Approval Authority. This prohibition includes charges to be made using the 

Govemment purchase card. 

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(4) After the Conference Approval Authority approves the conference, the 

conference sponsor will forward documentation of the approval to the servicing resource 

manager and contract procurement activity. The conference sponsor must forward to 

the contract procurement activity a funding document indicating the availability of funds 

and a contract statement of work setting forth conference-related contract requirements. 

With a view to securing the best value, the conference sponsor must secure approval of 

the conference and forward funding and requirements documents in enough time to 

allow for competitive procurement of conference support and/or facility contracts. All 

contracts related to holding a conference (for example, facility contracts and conference 

support contracts) must be fully funded with the authorized Govemment appropriation 

before contract award. Recurring conferences must be included in the command, 

organization or activity budget. Conference planners must ensure that all conference 

funding complies with 31 U.S.C. §1341, 31 U.S.C. § 3302 and DoD 7000.14-R. 

7. Command Responsibilities 

a. Appoint a conference manager, at the command or organization level (for 

example, Army command), who will be the primary point of contact for conferences, 

oversee the administrative and technical details of conferences and process conference 

requests requiring DA approval. The name and contact information of this individual 

must be provided to the Office of the Administrative Assistant and updated annually or 

as it changes. 

b. On a semiannual basis, report to the Office of the Administrative Assistant 

conferences held during the reporting period. The first report is due no later than 

15 May 2012 and will cover the period 1 October 2011 through 31 March 2012. The 

second report will be due no later than 15 November 2012 and will cover the period 

1 April though 30 September 2012. Reports will be due by 15 May and 15 November 

each year thereafter. If a date falls on a weekend or holiday, the next normal workday 

is the due date. The format for reports is at enclosure 5. 

c. Afteraction Reports. To accurately produce the semiannual report, the 

conference sponsor must forward an afteraction report to the appropriate Conference 

Approval Authority. Afteraction reports should be submitted 30 days after the 

completion of the conference and should include, at a minimum, the data elements 

needed to complete the report at enclosure 5. 

8. Approval Authorities 

a. The Administrative Assistant to the Secretary of the Army is the approval 

authority for all Army conferences that meet either of the following criteria: 

(1) total conference costs (as detailed in enclosure 3) are greater than or equal 

to $500,000; or 

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(2) the conference is held in conjunction with a non-Federal entity (NFE) with 

the following exceptions: 

(a) conferences held in conjunction with representatives from foreign 

governments or international organizations are excluded, unless they meet the 

threshold in paragraph 8a(1); and 

(b) conferences in which an NFE is competitively awarded a contract to support 

a conference sponsored or funded by an Army command, organization or activity are 

excluded unless they meet the threshold in paragraph 8a(1). 

b. For conferences with total conference costs less than $500,000 and that are not 

held in conjunction with an NFE, as defined in paragraph 8a, the approval authority is 

commanders of Anmy commands, Army service component commands and direct 

reporting units for conferences sponsored or funded by their respective commands, 

organizations or activities. The Administrative Assistant is designated as Conference 

Approval Authority for conferences sponsored or funded by Headquarters, Department 

of the Army (HQDA) organizations and activities (including the U.S. Army Acquisition 

Support Center). 

c. The officials designated as Conference Approval Authorities in paragraph 8b 

may delegate their authority as follows: 

(1) When conference costs are greater than or equal to $100,000 but less than 

$500,000, conference approval authority may be delegated in writing to the 

commander's principal deputy, provided that the principal deputy is a general officer or 

member of the Senior Executive Service, without the authority to redelegate. The 

Administrative Assistant may delegate this approval authority in writing to Principal 

Officials of HQDA, with the authority to further delegate to Deputy Principal Officials. 

For the National Guard, the Chief, National Guard Bureau may delegate to the Director, 

Army National Guard, who may delegate to the Deputy Director, Anmy National Guard, 

without the authority to further delegate. 

(2) When conference costs are greater than or equal to $25,000 but less than 

$100,000, conference approval authority may be delegated in writing to the first general 

officer or member of the Senior Executive Service in the chain of command or 

supervision over the sponsoring command, organization or activity, without the power to 

further delegate. For HQDA, the Administrative Assistant may allow delegation of this 

approval authority in writing no lower than Deputy Principal Officials of HQDA, without 

tjle power to further delegate. 

(3) When conference costs are less than $25,000, conference approval may be 

delegated in writing as detenmined by the Conference Approval Authorities designated 

in paragraph 8b. 

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d. No delegation of conference approval authority will take effect until a written 

copy of the delegation is provided to the Administrative Assistant for archiving. 

Notwithstanding any further delegation, the Conference Approval Authorities designated 

in paragraph 8b remain accountable for the acts and decisions of their delegates. 

e. The designated Conference Approval Authorities may supplement this 

regulation and establish command and local forms. A copy of any such supplement or 

forms shall be provided to the Administrative Assistant before implementation. 

9. Non-Federal Entities 

a. Statutory Authority. Certain conferences and events sponsored by NFEs have 

statutory authority that authorizes specified DA support to these conferences and 

events. This policy does not apply to these conferences and events; see the JER and 

DoD Instruction 5410.19 (Public Affairs Community Relations Policy Implementation). 

For example, 10 U.S.C. § 2558 authorizes logistical and administraiive support to 

certain national military associations for their annual national convention or conference. 

This support is limited to the following organizations and only for their annual national 

meeting, conference or convention: 

(1) Adjutants General Association of the United States, 

(2) Association of the United States Army, 

(3) Enlisted Association of the National Guard of the United States, 

(4) National Guard Association of the United States, 

(5) Non-Commissioned Officers Association of the United States of America, 

and 

(6) Reserve Officers Association of the United States. 

b. Cosponsorship. On occasion, an Army command or organization may 

cosponsor an event with an NFE. The Army is a cosponsor of an event when that 

command or organization is one of the organizations that develops the substantive 

aspects of the event or provides substantial logistical support for the event. All 

cosponsorship agreements must be reviewed by the sponsor's ethics advisor and 

forwarded to the Army General Counselor his delegatee for approval in accordance 

with the JER. Further, in accordance with paragraph 8a(2), the Administrative Assistant 

to the Secretary of the Army is the sole approver of cosponsored conferences with 

NFEs. 

(1) DA personnel may not endorse the NFE cosponsor(s) or its activities. 

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(2) DA personnel may not show preferential treatment to similarly situated 

NFEs that have a demonstrable interest in the subject matter of the conference. 

(3) There must be no appearance that the NFE cosponsor's role in or support 

of the conference will improperly influence DA personnel in other official matters the 

NFE may have an interest in. 

(4) The conference cannot be developed as a profit-making endeavor for the 

NFE cosponsor(s), including any vendor exhibition. 

(5) When an Army command, organization or activity cosponsors a conference 

and the cosponsor incurs costs, the cosponsor is permitted to collect registration fees 

from non-Federal attendees to cover its costs. Cosponsors who collect fees from Army 

attendees or comingle fees collected from non-Federal and Army attendees will comply 

with the provisions implementing 10 U.S.C. § 2262. If a graduated conference fee 

structure is used, no group will bear an unreasonable burden of the costs. 

d. Army Conferences Held in Conjunction With NFE Events. Generally, the 

competition requirements of the JFTRlJTR as executed via the geographic and 

venue/facility selection criteria make it difficult to plan for concurrent or sequential but 

separate Army and NFE conferences. Those rare circumstances where this is 

permissible and practical require HQDA approval just as a cosponsorship would. 

Additionally: 

(1) Army and NFE events will be separate and distinct events and will not be 

comingled. All Army activities, including awards ceremonies, outbriefings or in-progress 

reviews, will be held as part of the Army conference and will not be scheduled so that 

Army personnel must attend events hosted by an NFE. For example, Army conference 

activities will not bookend an NFE event. 

(2) The Army conference will not be scheduled with a view to accommodating 

or benefitting the NFE. DA personnel will not endorse conferences sponsored by an 

NFE nor will DA personnel participate in NFE fund raising events, unless authorized 

under the JER or other applicable ethics standards. 

(3) Holding an Army conference at the same location as an NFE event does 

not relieve the Army conference sponsor of the requirement to comply with applicable 

law, regulation and policy, including the provisions of this policy. 

(4) NFEs may not provide services, facilities or support to an Army conference 

unless such support has been acquired through normal acquisition procedures or the 

event is a cosponsored event. 

(5) DA logistical support, in the nature of DA personnel serving as speakers or 

panelists at conferences or other events sponsored by an NFE, will be kept to a 

minimum and must comply with the JER, chapter 3, section 2 (Official Participation in 

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Non-Federal Entities). DA will support events where only a limited number of DoD 

participants will appear on the same program. In such cases, the event must provide 

the best way to disseminate Army information, although speakers and panelists must 

take care to safeguard and prevent the dissemination of Army procurement, 

technological, classified and non-public information. NFE conferences or events at 

which the majority of speakers are Army officials or other Army personnel are 

considered cosponsored conferences and must be approved in accordance with 

paragraph 8a(2). . 

10 Other Considerations 

a. Conference Fees. Title 10 U.S.C. § 2262 allows DA to collect fees in advance 

of a conference, either directly or by using a contractor, from individuals and commercial 

participants attending DA-sponsored conferences. Such fees may only be used to 

offset reasonable and allowable costs because fiscal limitations on the expenditure of 

appropriated funds for conference expenses apply to the use of collected fees. 

(1) DA conference sponsors who use contractors, including those under 

no-cost contracts, to collect fees are permitted to structure such contracts to allow the 

contractors to offset from the fees collected the actual costs the contractor incurred 

(including its fee) to provide conference-related services. Contractor costs must be 

allowable costs authorized by the JFTRlJTR and other applicable regulations. 

(2) Fees that exceed the costs of putting on the conference must be deposited 

in the U.S. Treasury as miscellaneous receipts. Excess fees may not be retained or 

used for any other purpose. 

(3) In accordance with DoD 7000.14-R, Volume 12, chapter 32, all 

organizations are required to report the collection of conference fees. Conference 

sponsors should, therefore, contact their resource managers for further instructions. 

b. Spouse Travel. As a general rule, spouses may not accompany DA military or 

civilian personnel on official business at Government expense. In addition, blanket 

requests for Government-funded spouse travel generally are not sufficient or 

acceptable. Commands must be able to demonstrate the requirement and benefit for 

each proposed spouse attendee. Policy for spouse travel is in DA Directive 2007-01 

(Policy for Travel by Department of the Army Officials), 25 Jan 07. 

c. Individuals Not Employed by the Government Participating in aDA-Sponsored 

Conference. When a DA conference sponsor determines that it is in the best interest of 

the Government to request an individual who is not employed by the Government, only 

intermittently employed by the Government as a consultant or expert in accordance with 

5 U.S.C. § 5703, or serving without pay to lecture, instruct or give a demonstration or 

presentation, the individual may be reimbursed travel and travel-related expenses. In 

such cases, however, an invitational travel authorization must be issued in accordance 

with the JFTRlJTR, and travel must be arranged through a (Government contracted) 

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commercial travel office/travel management center. An invitational travel authorization 

is not authorized for an individual merely to attend a conference sponsored by DA or an 

NFE. Support contractors may not make travel arrangements for such individuals, 

unless arrangements are made through an authorized commercial travel officeltravel 

management center in accordance with the JFTRlJTR. Support contactors may not pay 

the travel expenses of such individuals and then be reimbursed these costs. 

d Contractor Travel. Government contractor travel costs are governed by the 

rules in the Federal AcquiSition Regulations. For these reasons, a contractor is not 

eligible for an invitational travel authorization in the execution of a contract. 

e. Official Representation Funds. Any official representation funds requested to 

purchase meals or refreshments for authorized guests, such as congressional 

delegations or foreign dignitaries, must be approved under separate memorandum in 

accordance with AR 37-47 (Representation Funds of the Secretary of the Army). 

11. The provisions of this policy are effective immediately. The HQDA proponent for 

this policy is the Administrative Assistant to the Secretary of the Anny. 

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REFERENCES 

1. Joint Federal Travel Regulations, Volume 1. 

http://www.defensetravel.dod.mil/Docs/perdiem/JFTR(Ch1-1O).pdf and 

http://www.defensetravel.dod.miIlDocs/perdiem/Appendices.pdf 

2. Joint Travel Regulations, Volume 2. 

http://www.defenselravel.dod.mil/Docs/perdiem/JTR(Ch1-7).pdf 

3. DoD 5000.7-R (Joint Ethics Regulation (JER)), 23 Mar 06. 

http://www.dod.gov/dodgc/defense _ ethics/ethics_regulation/jer1-6.doc 

4. DoD 7000.14-R (Department of Defense Financial Management Regulation); 

Volume 12 (Special Accounts, Funds and Programs); chapter 32 (Collection and 

Retention of Conference Fees From Non-Federal Sources), July 2009. 

http://comptroller.defense.gov/fmr/12/12_32.pdf 

5. DoD Instruction 5410.19 (Public Affairs Community Relations Policy 

Implementation), 13 Nov 01. 

http://www.dtic.mil/whs/directives/corres/pdf/541 019p.pdf 

6. AR 37-47 (Representation Funds of the Secretary of the Army), 12 Mar 04. 

http://armypubs.army.mil/epubs/pdf/R37_47.PDF 

7. AR 380-05 (Department of the Army Information Security Program), 29 Sep 00. 

http://www.apd.army.mil/pdffiles/r380_s.pdf 

8. AR 380-10 (Foreign Disclosure and Contacts with Foreign Representatives), 

22 Jun 05. 

http://www.apd.army.mil/pdffiles/r380_ 1 O.pdf 

9. Army Directive 2007-01 (Policy for Travel by Department of the Army Officials), 

25 Jan 07. 

http://www.apd.army.mil/pdffilesiad2007_01.pdf 

10. Memorandum, Secretary of Defense, 27 Dec 10, subject: Consideration of Costs in 

DoD Decision-Making 

https:/ldap.dau. mil/policy/Lists/Policy%20Documenlsl Attachments/3257/08D14152 

-10.pdf 

11. Memorandum, SAFM, 17 May 11, subject: Guidance for Consideration of Costs in 

Army Decision-Making. 

http://armypubs.army.mil/epubs/asa_fmc_collection_ l.hlml) 

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12. 5 U.S.C. § 5703 (Per diem, travel, and transportation expenses; experts and 

consultants; individuals serving without pay). 

http://www.law.comell.edu/uscodeisearch/display.html?terms~5703&url;iuscodeiht 

ml/uscode05/usc_sec_05_00005703----000-.html 

13. 5 C.F.R. § 410.404 (Determining if a conference is a training activity). 

hltp:llcpol.army.mililibrary/permiss/78.html 

14. 10 U.S.C. § 2262 (Department of Defense conferences: collection of fees to cover 

Department of Defense costs). 

http://www.law.comell.edu/uscodelhtmliuscode10/usc_sec _10_00002262----000-

.html 

15. 10 U.S.C. § 2558 (National military associations: assistance at national 

conventions). 

http://www4.1aw.comell.edu/uscode/htmlluscode1 O/usc_sec_1 0_00001588---000-

.html 

16. 31 U.S.C. §1341 (Limitations on expending and obligation amounts) 

http://www.law.comell.edu/uscode/usc_sec_31_00001341----000-.html 

17. 31 U.S.C. § 3302 (Custodians of money) 

http://www.law.comell.edu!uscode!html/uscode31!usc_sec_31_00003302----000-

.html 

18. DoD Preferred Commercial Lodging Programs. 

htlps:llwww.delensetravel.dod.miI/Docs/FacCSheeCLodging.pdf 

19. Hotel-Motel National Master List. 

http;llwww.usla.fema.gov/applications/hotel/ 

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YOUR OFFICIAL LETTERHEAD 

(office symbol) (date signed) 

MEMORANDUM THRU (if applicable) 

FOR (Approval Authority in accordance with Army Directive 2011-10) 

SUBJECT: Request Approval to (Sponsor or Cosponsor) the (insert name of event), 

(dates) 

1. Event. (Insert name of sponsoring proponent) requests approval to conduct the 

(insert name of conference), (insert dates of conference), at (insert the location of the 

conference ). 

2. Purpose and Justification. Explain why the conference is being held; include any 

applicable regulations or directives. If the conference is being cosponsored, include a 

full explanation of what is being provided and eXChanged. If the conference is in 

conjunction with a non-Federal entity, additional requirements apply (refer to Army 

Directive 2011-20, paragraph 9). 

3. Cost-Benefit Analysis. Explain the benefits of holding the conference. Explain why 

lower cost altematives such as teleconferencing, video conferencing or Web 

conferencing were not feasible and include any cost savings features from previous 

conferences. For any conference requiring travel, include a certifying statement that the 

objectives of the conference cannot be satisfactorily accomplished less expensively by 

correspondence, teleconferencing, Web-based communications or other appropriate 

means. 

4. Analvsis for Location Selection. Military installations or Government-owned or 

leased space must be considered first. Clearly demonstrate efforts to first secure 

military or Government space. For conferences with 30 or more attendees, state the 

three geographic locations surveyed and provide the rationale for the selected location. 

(For example, you should demonstrate where the majority of your attendees are 

traveling from and why the geographic location is most cost-effective.) Then clearly 

identify the three venues conSidered, including costs and any other factors used in the 

selection. If using commercial space within the National Capital Region (NCR), you 

must request approval from Washington Headquarters Services, Defense Facility 

Directorate, Space Policy and Acquisition Division and include the division's approval as 

an enclosure to the conference request. 

5. Attendees. Provide information on your expected attendees (for example, all general 

officers in the medical profession on the East Coast). Include what measures have 

Army Directive 2011-20 Enclosure 3 
70 


418rms21.eps

OFFICE SYMBOL 

SUBJECT: Request Approval to (Sponsor or Cosponsor) the (insert name of event), 

(dates) 

been taken to discipline attendance to ensure the minimum number of attendees. Then, 

complete the following chart for your expected attendance. 

Number of military attendees 

Number of DA civilian attendees 

Number of contractor attendees 

Number of all other attendees (describe status and role in 

conference-statutory volunteers, etc.) 

Number of foreign government attendees 

GRAND TOTAL 

Of the attendees: 

Number of local attendees (i.e., those not on TDY orders - usually 

traveling from within the local commuting area) 

Number of Anny-funded attendees (either centrally or commandfunded). 

Number of spouses traveling at Government expense (additional 

approval required) 

6. Security. Provide contact information for the security office handling this conference. 

State the classification of the conference and certify that the procedures outlined in 

AR 380-5 (Department of the Army Information Security Program) have been followed, 

if applicable. If any personnel from a foreign government are attending or if any 

classified information will be discussed, certify that coordination has been done with the 

Office of the Deputy Chief of Staff, G-2 (DAMI). You must enclose a conference 

security assessment, including threat and vulnerability assessments for the conference 

facility site and any specific security requirements for the conference facility, with your 

conference request. If the facility has not been selected at the time of the request, 

include as much information as is known. 

7. Funding and Contracts. Clearly explain how the conference is funded. Explain who 

is paying for all costs associated with the event and what funding source they are using 

(e.g., regular Operation and Maintenance, Army; official representation funds (ORF); 

registration or exhibit fees; or any other Government agency funds). Include funding 

from both the conference proponent and attendees' organizations. For example, state 

Army Directive 2011-20 2 
71 


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OFFICE SYMBOL 

SUBJECT: Request Approval to (Sponsor or Cosponsor) the (insert name of event), 

(dates) 

whether attendees' organizations are funding travel and reimbursable registration fees. 

(A full explanation of registration fees should be included in paragraph 10.) If 

applicable, state the amount of ORF being requested and the date the ORF packet was 

submitted or will be submitted in accordance with AR 37·47 (Representation Funds of 

the Secretary of the Army). Ifthe contract vehicle is known, include details. Enclose 

with your request any vendor proposal documents that will be relevant to 

decision making. 

8. Meals and Incidental Expenses. State whether any meals will be provided at 

Government expense in lieu of per diem. State the cost of each meal (including gratuity 

and applicable taxes) per person. (For example, each day attendees will be provided 

breakfast, lunch and dinner at the following costs: B = $#/person, L = $#/person, 

0= $#fperson OR conference attendees will be provided lunch each day at $#/person). 

If a Government-furnished meal is provided, the proportional meal rate (PMR) applies to 

military personnel and DA civilians for each day meals are furnished. Further, you must 

demonstrate that the cost of the Government-furnished meals plus the PMR does not 

exceed the per diem for the locale. If meal breaks are worked into the agenda and 

attendees will purchase all meals with their provided per diem or optional 

nonreimbursable registration fee, please indicate "No Government-furnished meals." In 

the "Estimated Cost" table in paragraph 12, you will need to show the calculations of 

meals and incidental expenses (M&IE) and Government-furnished meals to make sure 

attendees are given the proper M&IE rate. Travelers are authorized 75 percent of M&IE 

on their departure and return dates (that is, travel days). 

9. Refreshments. Refreshments are a personal expense and will not be provided at 

Government expense. Conference planners may offer attendees the opportunity to 

purchase refreshments as a personal expense not reimbursable by the Government. 

On rare occasions refreshments are both non-segregable (not identifiable as a separate 

charge in the facility costs) and non-negotiable (that is, the facility will not reduce the 

cost of the venue if refreshments are refused). However, this situation is rare, and by 

signing the conference request, the submitting official is attesting to the fact that the 

refreshments are non-segregable and nonnegotiable .. Any refreshments provided must 

be specifically addressed in the written legal review submitted with the conference 

request. 

10. Fees. State whether a conference registration fee or exhibitor (vendor) fee will be 

collected; state the amount of the fee being collected for each person or vendor, and list 

all expenses and costs covered by the fee. Collection of fees must be conducted as 

permitted by applicable law, regulation and policy. Any conference or exhibit fee must 

be explicitly addressed in the written legal review submitted with the conference 

Anmy Directive 2011-20 3 
72 


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OFFICE SYMBOL 

SUBJECT: Request Approval to (Sponsor or Cosponsor) the (insert name of event), 

(dates) 

request. Please ensure that you refer to the policy document for additional 

requirements governing fees. 

11. Honorariums or Speaker Fees. State whether or not honorariums or speaker fees 

will be paid and the cost paid for each speaker. In general, fees are limited to $2,000 a 

person, but refer to your command policy and/or DOD 7000.14-R, Volume 10, 

chapter 12, paragraph 1208 (Payments of Fees for Guest Speakers, Lecturers, and 

Panelists) for more information. 

12. Estimated Costs. State the estimated costs for all expenses listed in the table and 

show all calculations; examples of appropriate remarks and calculations are provided. 

Costs should include any Army funds to be expended, whether by the conference 

proponent or attendees' commands or organizations. 

Expense Estimated Cost Any Applicable Remarks 

lodging costs for attendees (Hotel rate) x (# nights) x (# of attendees on 

TOY) = $_. Use the per diem lodging rate to 

show whether the lodging is within per diem. If 

the # of nights per attendee varies (e.g., 

support staff arrives early), show the 

calculations. 

M&IE costs for attendees FIRST & LAST DAY OF TRAVEL: (M&IE rate) 

x 75% x (2 travel days) x (# of attendees on 

TDY) =$_ 

CONFERENCE DAYS (w/ no Governmentfurnished meals): (M&IE rate) x (# full 

conference days) x (# of attendees on TDY) = 

$_. 

CONFERENCE DAYS (with Govemmentfurnished meals): (PMR) x (# days with 

Government-furnished meals) x (# of 

attendees on TDY = $_. 

NOTE: PMR is used for any days the 

Government provides one or two meals; if it 

provides three meals, only incidentals are 

allowable. See the PMR Computation Table at 

enclosure 4 for more information on PMR and ' 

allowable per diem, 

Army Directive 2011-20 4 
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OFFICE SYMBOL 

SUBJECT: Request Approval to (Sponsor or Cosponsor) the (insert name of event), 

(dates) 

Expense Estimated Cost Any Applicable Remarks 

Government·furnished List each meal separately. 

meals 

(Cost per meal) x (# of attendees authorized 

Government·furnished meal) = $ __ 

NOTE: Local attendees (those not in TOY 

status) are not authorized to be provided 

meals at government expense. The amount of 

PMR plus the cost of the Government· 

furnished meal(s) may not exceed per diem. 

Travel costs for attendees (Average price of plane ticket) x (# of 

attendees) and/or POV reimbursement or 

other travel methods. 

Meeting space rental costs Include all costs associated with facility rental 

space per proposals. If the facility is in the 

NCR, include the statement 'WHS approval 

has been included with this request." 

Audiovisual costs Include any audiovisual cost estimates 

(screens, microphones, etc.) 

Fees for guest speakers, Include cost for each speaker, travel costs, or 

lecturers, or panelists any other costs associated with speakers. 

Include approval of honorarium if $2,000 

limitation is exceeded. 

Printing or reproduction Reproduction costs for handouts. 

costs 

Standard supplies Name tags, pens, paper, folders 

Security costs If applicable, as recommended by the 

appropriate security office. 

Other specific costs such For example, van needed to transport supplies 

as van rental, telephone to venue. 

fees, computer fees 

Contracted facilitator or Include the contract or requisition # if known. 

coordination cost Include description of what it covers and 

estimated costs. 

Army Directive 2011·20 5 
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OFFICE SYMBOL 

SUBJECT: Request Approval' to (Sponsor or Cosponsor) the (insert name of event), 

(dates) 

Expense Estimated Cost Any Applicable Remarks 

Personnel and associated Provide estimated military/DA civilian 

costs personnel costs associated with coordinating, 

preparing and executing conference. Include 

any lodging or transportation required to plan 

and execute the conference (i.e., site visits). 

Do NOT include the personnel costs (salaries 

and benefits) of those attending the 

conference, other than support staff. For 

assistance with personnel rates and 

calculations, refer to 

httgs:/lwww.cage.osd.mil/costguidanc!l/). 

GRAND TOTAL $ 

13. Point of Contact. (Provide organizatiQn contact information: name, phone number, 

email address.) 

(reviewing official signature block)\ 

NOTE: The following items must accompany this request: 

1. Conference agenda 

2. Legal review 

3. WHS approval (for those using commercial space In the NCR) 

4. Security review 

5. Vendor proposals (if any) 

Army Directive 2011-20 6 
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COMPUTATION EXAMPLES OF PROPORTIONAL MEAL RATE (PMR) 

The total amount paid by the Government for meals cannot exceed the locality meal 

rate. Therefore a conference sponsor must make sure the total amount to be expended 

for Government-provided meals and reimbursed as PMR is within the locality meal rate. 

This cost limitation makes it very difficult for a conference planner to provide 

Government-furnished meals, especially at a commercial establishment, and remain 

within the locality meal rate. Computations are done on a daily basis. 

Example: A conference sponsor is planning to hold a conference at a location where 

the CONUS rate for meals and incidental expenses (M&IE) is $46. The $46 consists of 

$41 for meals and $5 for incidental expenses. The conference sponsor wants to 

provide breakfast on the 2 full days of temporary duty (TOY) and a dinner on the second 

day of TOY. The cost of breakfast for each person for each day is $7. The cost of 

dinner for each person is $36. 

Part I: Find the PMR 

The tool at http://www.dafensetravel.dod.millsite/perdiemCalc.cfm provides the 

necessary information to find the applicable meals rate and PMR. The chart is 

applicable to this example. Note "Local Meals" is the full per diem rate and 'Prop 

Meals" is the PMR. 

County andlor 

Other Oeflned Seasons Max Local f!!!I!. Maximum Effective 

LOCATION (1) Location (2) (Beg-End) Lodging Meals Meals Incidentals Per Diem Date 

STANDARD STANDARD 01/01· 77 41 £i! 5 123 10/0112010 CONUS RATE CONUS RATE 12/31 

Part II: Determine How Much the Conference Sponsor May Spend for Meals 

Once the PMR is identified, the conference sponsor must determine whether the 

cost for meals plus the PMR exceeds the meal rate. If the cost for meals plus the PMR 

exceeds the meal rate, the conference sponsor is unable to contract for meals at the 

proposed costs. In the example, the meal rate is $41. 

Army Directive 2011-20 Enclosure 4 
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For the first day of TOY, the conference sponsor wants to provide breakfast al a cost of 

$7 a person: 

Step 1 Find the PMR $26 

Step 2 Find the local meal rate $41 

Step 3 Add the cost of breakfast to the PMR $7 + $26 = $33 

Step 4 Because the cost of breakfast and the PMR (step 3) is less 

than the local meal rate (step 2), the conference sponsor 

may contract for breakfast at this cost. 

For the second day of TOY, the conference sponsor wants to provide each attendee 

breakfast at a cost of $7 and also dinner at a cost of $36: 

Step 1 Find the PMR $26 

Step 2 Find the local meal rate $41 

Step 3 Add the cost of breakfast and the dinner to the PMR $7 + $36 + $26= $79 

Step 4 Because the cost of the breakfast, dinner and the PMR 

(step 3) exceeds the local meal rate (step 2), the 

conference sponsor may not contract for dinner at a cost 

of $36. 

Army Directive 2011-20 2 
77 

Mr. WORK. In May 2012, the Office of Management and Budget (OMB) released 

a memorandum to promote further efficiency and cost consciousness and directed 

the government to reduce cost and improve efficiencies in areas such as travel and 

conferences. The Department of Defense (DOD) issued amplifying guidance that directed the heads of each component or service to review all conferences that their 

organization was hosting or sponsoring. In June 2012, the Department of the Navy, 

in response to the OMB and DOD guidance, issued the attached updated conference 

guidance and data call. 


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THE UNDER SECRETARY OF THE NAVY 

WASHiNGTON DC 2.0350·1000 

MEMORANDUM FOR DISTRIBUTION 

SUBJECT: Updated Guidance and Data Call on Conferences 

June 12, 2012 

References: (a) OSD memo "Implementation of May 11,2012, Office of Management 

and Budget Memorandum, 'Promoting Efficient Spending to Support 

Agency Operations'" of June 3, 2012 

(b)OMB mcmo M-12-12 of May 11,2012 

(c) ALNAV Onlll 

Cd) DON/AA memo ofJanuary 31,2012 (NOTAL) 

Reference (a) provides initial guidance for implementing those portions of 

reference (b) that concern conference planning and accountability. 

The conference approval authorities identified in paragraphs 3A(l) and 3B of 

reference ( c) are rescinded. Until further guidance is published, conferences estimated to 

cost over $500,000 must be approved by the Deputy Secretary of Defense 

(DEPSECDEF), and conferences costing between $100,000 and $500,000 must be 

approved by the Office of the Secretary of Defense Deputy Chief Management Officer 

(OSD DCMO). Department of the Navy (DON)-sponsored conferences costing less than 

$100,000 in DON funds will continue to be approved per paragraphs 3A(2) and 3C of 

reference (c) and reference (d), subject to the temporary restrictions described below. 

Reference (a) directs a review of all upcoming conferences that the DON is 

hosting or sponsoring, or that DON employees will be attending, where expenses to the 

Department of Defense (DoD) are likely to exceed $100,000. To accomplish this task, 

provide the following information to the Department of the Navy/Assistant for 

Administration (DON/AA) by July 5, 2012. 

1. Complete attachment (1) for all upcoming conferences (as conferences 

are defined in paragraph 6 of reference (c») that are being hosted or sponsored by the 

DON where expenses to DoD are likely to exceed $100,000. 

• This includes conferences planned but not yet approved, and 

conferences that are approved but have not been held. 

• Conference expenses include attendee registration fees, attendee travel 

costs, attendee per diem costs, and all other costs associated with 

planning and hosting the conference. 
79 


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SUBJECT: Updated Guidance and Data Call on Conferences 

• Attendees include both Navy and Marine Corps personnel, as well as 

DON civilian employees. 

2. Using attachment (2), list all conferences that DON employees in your 

immediate and subordinate organizations plan to attend. Include those being hosted by 

the DON, another government agency (Department of the Anny, General Services 

Administration, etc.), or a non-Federal entity. Addressees must aggregate the estimated 

travel and per diem costs by conference. 

A cover memo must accompany attachments (1) and (2) stating that the 

included conferences significantly advance the DON's mission, and that expenses and 

activities associated with these conferences comply with all applicable travel, conference, 

and acquisition regulations. A sample cover memo is at attachment (3). 

I will forward the results of the review to OSD DCMO. Planning for all 

conferences may continue, but until this review is completed and transmitted to DCMO, 

the following rules apply: 

• Conferences for which funds have been obligated, e.g., approved travel 

authori7.ations, signed contracts, signed no-cost contracts, will be 

executed as approved. 

• Conferences for which no funds have been obligated, even if approved 

prior to June 3, 2012, are on hold but planning should continue. 

• If total DON expenses will exceed $100,000 for any conference hosted 

or attended by DON employees, travel authorizations will be suspended 

pending notification to OSD DCMO. 

• Any conference not approved before June 3, 2012 and estimated to cost 

between $100,000 and $500,000 must be submitted through the chain of 

command for approval by OSD DCMO. 

• Any conference not approved bcfore June 3, 2012 and estimated to cost 

over $500,000 must be submitted through the chain of command for 

approval byDEPSECDEF. 

Semi-annual reports are required. Complete the semi-annual report, attachment 

(4) for conferences held by addressees or their subordinates. The first report covers the 

2 
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SUBJECT: Updated Guidance and Data Call on Conferences 

period September 21, 2011 through March 31, 2012, and is due to the DON/AA on July 

30,2012. The second report, covering the period April 1,2012 through September 30, 

2012, is due November 1, 2012. 

The shortest path to reestablishing reasonable DON approval authorities is to 

rapidly provide accurate data. I am confident in your full cooperation in this effort. 

Questions may be addressed to Ioy Douglas,joy.douglas@navy.mil, (703) 692-

6684 or Sharon Williams, sharon.williams@navy.mil, (703) 693-0991. 

Attachments: 

1. Brief Sheet for a Conference Hosted 

2. List of Conferences to be Attended 

3. Sample Memo 

4. Semi-Annual Report 

Distribution: 

ASNs 

GC 

DNS 

DMCS 

DON/AA 

1MP,;.~ 

3 
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Brief Sheet for a Conference Hosted or Sponsored by DON Where Expenses are Likely to Exceed $100,000 DON~Wide 

'tern Desert tlon: Notes/Comments 

1 Submittin Organization 

2 Comeren1:e Trtle 

3 G-eographic LDcation f_-------""(':!t'[-----+--"'St"' ... "'-+-----------~ 

4 oates(stert/end) 

5 Purpose of Conference 

6 Frequency of Conference 

~7-Du-~-oo-n-.-f-c.-n .. -'-.n-'-.---.f_---i~~~O-~--·~I--__ L-____ ~---------------~ Fa(.ilitv (indlJde whether facility is a 

8 military in.italilition, gOlfl'lfl1ment 

building, hotel, etc) 

9 Is ali NFf involved? If yes, spedfy in 

"Notl!S/Comments"collimn. 

10 Planned Nl.>mber ~f Attendees bV 

the categories indlcated 

11 lodgin, {I",dlcate If go .... 't provided 

lOdging, or if itwas within per dIem.) 

Rental Cars (Identify requirements, 

12 justify tne need, discuss carpooling 

andotheroptlonsj 

Agenda (Affi! there e\it!r'lir'lg events? 

13 Do pre- or post-conference SOCIal 

e ... entsrequireattendeestoextend 

TOY,?) 

Meals (With!n Pf;lrdiern r~tes] Are 

any meats being furnished dt,lring: the 

14 conference? If so, have attendees 

been notified to annotate travel 

orders?) 

Conference Fel'!:s (IS there a 

conference fee? If so, what is covered 

15 by the f~? Have you coordinated 

with your Budget Suhrl\lttinS. 

OfflC€(BSO)!OC, P&R rl'gardlOg 

conferern;:e fee t;oNectionr) 

16 DON CostAna/ysl$ 

18 Conference Point of Cootact 

informiltiolll 

Ccstltem 

Total Tralfel 

Conference Fees 

FacilIty Rentai 

ContraC1orSuppcrt 

PlanningCosts(salafies,travel,etc.) 

Otl~et (specify, add lines as necessary) 

Total DON cosu {exci. auendee salaries) 

Estimated Cost 

(dollars) 

Attacnment(l) 

418rms33.eps

list of Conferences to be attended 

by any DON employee (military or civilian) 

Ilndudes DON, other DoD, other Federal agencies, & Nno-Federal Entities - anything anyone is attending. 

l lnc!ude military and civilian. 

Note: Conferences on this list wi!! not have a corresponding "Conference Approval Brief Sheet" if the 

submitting organization is not the sponsor. 

Atta
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LETTERHEAD 

DATE 

MEMORANDUM FOR DEPARTMENT OF THE NA VYI ASSISTANT FOR 

ADMINISTRA nON 

SUBJECT: Updated Guidance and Data Calion Conferences 

Reference: (a) UNSECNAV mcmo of June X, 2012 

Attachments (I) and (2) are forwarded in response to reference (a). 

I certily that the conferences reflected in the attachments significantly advance the 

Department of the Navy's mission, and that the expenses and activities associated with 

these conferences comply with all applicable travel, conference, and acquisition 

regulations. 

JOHN DOE 

Attachments: 

1. Brief Sheet for a Conference Hosted 

2. List of Conferences to be Attended 
84 

Mr. MORIN. See attached memo (28 Oct. 2011 Air Force POlicy Memorandum— 

Conferences). 


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SECRETARY OF THE AIR FORCE 

WASHINGTON 

MEMORANDUM FOR MAJCOMslFOAsfDRUs 

DISTRIBUTION C 

SUBJECT: AIR FORCE POLICY MEMORANDUM - CONFERENCES 

This is an Air Force Policy Memorandum immediately implementing updated Air Force 

policies regarding the processing and approval ofrequests from Air Force organizations to hold 

conferences. Compliance with this Memorandum is mandatory. It applies to all conferences 

sponsored, co-sponsored or funded, in whole or in palt, by Air Force offices or organizations, 

including Air Force Reserve and Air National Guard organizations, when appropriated funds are 

used. To the extent its direction is inconsistent with other Air Force puhlications, the 

information herein prevails, in accordance with AFI 33-360, Publications and Forms 

Management. 

The Air Force remains committed to the efficient stewardship of public funds when it 

comes to planning and executing conferences. All Air Force-sponsored or funded conferences 

must be necessary for mission accomplishment, must be the product of sound and comprehensive 

cost analysis and must stand up to scrutiny, particularly with respect to our fiscal responsibilities. 

We must avoid hoth actual and perceived careless, wasteful or extravagant expenditures. To this 

end, attached is are-statement of the Air Force's policy and guidance on conference planning 

and approval. The Administrative Assistant to the Secretary of the Air Force (SAF/AA) is 

designated as the Air Force point of contact for conference-related policy. 

Ensure all records created as a result of processes described in this Memorandum are 

maintained in accordance with AF Manual (AFMAN) 33-363, Management of Records, and 

disposed of in accordance with the Air Force Records Disposition Schedule (RDS) located at 

hltps:llaliims.amc.aCmil/. 

The policy and guidance in this Memorandum becomes void after 180 days have elapsed 

Ii'om the date of this Memorandum, or upon release of an Air Force publication incorporating the 

policy and guidance, whichever is earlier. 

n.:.~/.. e,.'PrU~ 

Michael B. Donley I 

Attachment: 

Air Force Policy on Conferences 
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AIR FORCE POLICY ON CONFERENCES 

Conferences continue to draw great interest and scrutiny. In our continuing effort to ensure 

appropriate llscal responsibility for planning and conducting conferences hosted or funded by 

Air Force organizations. the following is provided as an update of Air Force policy in this area. 

When it is determined that only a conference will suffice to accomplish official business. 

conference planners and senior leadership llluSt ensure that conferences are planned and 

conducted in accordance with this policy. 

GENERAL POLICIES: 

I. Appendix R of the Joint Travel Regulations/Joint Fcderal Travel Regulations (.lTRfJFTR) 

provides Oepmtment of Defense (DoD) policy and perspectives regarding conferences. 

pal1icularly regarding conference planning. Appendix R includes a reminder that "the public 

interest requires that Uniformed Sen'ices and DoD agencies exercise strict fiscal 

responsibility when selecting conference sites" ... so as to "minimize conference costs:' [t 

also provides that when DoD personnel attend conferences sponsored by others. 

representation should be kept to a minimum "consistent with serving the public's interest." 

Conference planners must familiarize themselves \\ith applicable DoD and Air Force 

regulations and travel policy guidelines before starting to plan a conference, Conference 

planners and approval authorities should also reler to Appendix R for the factors to be 

considered in planning and approving conterences that will be supported in whole or in part 

with Air Force funds. 

2. Conierence defined, The JTRfJFTR broadly detines a "cOI?lerence" as a "meeting, retreat, 

seminar, symposium or event that involves travel." 

This definition includes events that are training activities under 5 Code of Federal 

Regulations 410.404, but not "regularly scheduled courses of instruction conducted at 

a Government or commercial training facility." 

• In recognition of the fact that a number of gatherings necessary to carry out otlicial 

business might otherwise fall under the broad JTRfJFTR defInition. "conFerence" has 

been interpreted not to include assemblies or gatherings convened to address business 

mailers internal to the Air force (or other topics with little relevance outside the Air 

Force) and those primarily involving day-to-day Government operations, This 

exception further includes events required to carry out the Air Force's statutory and 

regulatory functions. such as inspections, audits, investigations, site visits, 

negotiations and litigation. Examples of the types of internal deliberative-type 

decision-making events not considered to be "conj'erences" arc Air Force Corporate 

Process activities. personnel boards (e.g., promotion). and developmental teams. 

• Events that may otherwise lall outside the delinition of a "conference" may fall 

within this policy and guidance. depending on the facts. if they take on indicia or 

characteristics of a "conference." These include registration, a published substantive 

agenda, scheduled speakers or discussion panels. participation of non-Air Force 

personnel. etc. Organizers and approval authorities should care1i.llly examine the 

factors and considerations set out herein and seek advice from their local legal 

advisor as appropriate. Any doubt regarding the application of these policies and 
87 


418rms38.eps

guidance will be resolved in favor of seeking approval, at least through the 

preliminary approval process outlined herein. 

3. Consideratioll of alternatives. All ot1iccs considering a conference as a means of training. 

planning or disseminating information will first consider the alternatives available. whether 

teleconference. videoconference, e-mail or correspondence or other means. 

4. Preference for use of Government-owned/Govcrnmcnt-provided facilities. When a 

conference is the only viable option. the first choice for a location must be a venue controlled 

by the federal govcrnment. preferably one in the local area of the largest group of anticipated 

attendees. 111is "local first" approach will help minimize conference-related spending. 

Theretore, unless fully justified, all Ail' force-sponsored 01' funded conferences must take 

advantage of on-base or other Govcmment-owned/provided facilities. All Air Forcesponsored or ti.lllded conferences that involve classified information must be held in a 

suitable on-base or Government-owned/provided facility. Conference planners will consider 

alternate dates and locations in an enor! to take advantage of the cost savings on-base 

facilities may provide. Commercial facilities should be used only when they are clearly 

shown to be more economical or when military or other Govemmcnt facilities are 

unavailable when needed. 

5. Minimization of numher of attendees and support staff. C onfercnce planners and approval 

authorities are responsible tor ensuring that only the minimum number of attendees and 

support staff needed to accomplish mission requirements will participate in Air Force-funded 

or hosted confercnces. 

6. Minimization of conference-related expenses. As responsible stewards of taxpayer dollars, 

Air Force personnel must seek opportunities to combat inefticient or wasteflll spending - and 

to improve Goycmment perfonnanee and management. Conference planners and approval 

authorities are expected to take a proactive approach in examining the utility and frequency 

of conferences and to optimize opportunities to reduce conference-related expenses. 

7. Exceptions to policy. Requests tor exceptions to policy will be submitted via conunand 

channels to the ot1ice of the Administrative Assistant to the Secretary (SAF!AA). 

APPROVAL AUTHORITIES: 

I. Significant events. Authority to approvc confcrences involving any of the following 

(regardless of event location) lllust be processed through SAFIAA for approval by the 

Secretary of the Air Force (SECAf) or the Under Secretary of the Air Force (USECAF): 

Those involving the expenditure of$500.000 or more in funds for conference-related 

costs. regardless of the source of the funds; 

Those involving co-sponsorship with a non-Federal cntity or other Government 

agency (regardless of the level of expenditures); and 

Those invoh'ing spouse travel (regardless of the level of expenditures). 
88 


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2. Other oft:base conferences. Thc lcye1s of approval authority currently enumerated in 

paragraph 10.2.5 of AFI 65-601. Volume 1 are hereby modilied. 

For conferences held off Air Force installations (whether at another Government 

facility or a commercial venue) with total anticipated conference costs less than 

$500,000. (and not otherwise meeting the criteria of Paragraph 1 above), the approval 

authority is established at the following levels. unless otherwise indicated. this 

authority may not be further fe-delegated. 

o For the Secretariat: SAFlAA: 

o For the Air Staff and other National Capital Region (NCR) organizations: 

requests will be processed through the Assistant Vice Chief of StatT 

(AF/CVA) and the Vice Chief of Stall' (AF/CV) for approval by SAFIAA: 

o For the MAJCOMS and subordinate organizations: the MAlCOM vice 

commanders (CV). This authority may be delegated by the MAJCOM/CY to 

Numbered Air Force commanders lor wing-level events only; 

o For Field Operating Agencies: the HQ USAF two-letter oftice having 

oversight of the activity: 

o For the USAF Academy: the Superintendent: and 

o For AFOTEC: the Commander. 

3. Other on-base conferences. Requests to hold conferences on Air Force installations (and no! 

otherwise meeting the criteria of Paragraph 1 above) \\"ill be routed through the installation 

commander for coordination before being sent to the appropriate approval authority. The 

authorities listed in Paragraph 2 above also act as the approval authorities for conferences 

being hosted or sponsored on Air Force installations. 

CONFERENCE REOUESTS: 

1. Except where preliminary approval is given. no funds may be obligated or otherwise 

committed for conference facilities or other conference-related expenses before approval 

authority review and action is obtained. 

Approval of a prior year conference does not sul1ice as approval in subsequent years. 

Due to changes in costs. tocus, needs, and availability ofresources, each event must 

be evaluated on its own merits. 

Where retention of a commcrcial conference planner/coordinator is contemplated. 

preliminary approval (as outlined below) will be obtained from the appropriate 

approval authority before such services are engaged. 

Final review and approval must be sought no latcr than 60 days prior to the planned 

event. Failure to submit a timely request for linal approval may result in denial. 

All conference-related contracts mllst be signed by a warranted contracting officer or, 

when authorized. a government purchase card holder. 

2. Conference requests must be signed by a general oft1cer (GO) or member ofthc senior 

executive service (SES) as an affirmation of compliance with 000 and Air Force policy prior 

to routing the request through command channels for review and approval. 
89 


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3. Conference request packages (preliminary and final) will include the information essential 

for an approval authority to make an infonned decision. See Appendix R of the JTRJJfTR as 

a reference. 

4. Preliminary approval requests. Requests for preliminary approval of a conference are not 

required in all cases. A preliminary approval request will be submitted as early as possible 

whenever conference planners anticipate that long-range plans or financial commitments will 

be needed and/or they lack sufficient information for the final approval process. Preliminary 

approval is conditional (limitations on expenditures approved should be addressed in the 

preliminary approval document) and must be followed up with a timely final approval 

package. Preliminary approval packages will be appropriately staffed and include: 

A discussion of the mission purpose or focus of the event; 

The anticipated date(s) of the event; 

A discussion of the alternatives to a conference that have been considered and why 

each was found not to be acceptable from a mission purpose perspective; 

A discussion of the anticipated or desired location of the conference, including "local 

tirst" considerations as, discussed above, and steps taken or to be taken to adjust dates 

or locations to secure an on-base or Goverrunent-owned/provided facility; 

A draft agenda outlining anticipated speakers, presentations and other activities; 

A list of anticipated invitees/attendees; 

An estimate of costs. To the extent possible with available information, the tool at 

https:!lwww.cape.osd.mil/costguidance/ will be used to complete an analysis and the 

results included with the request; 

A discussion of how this event was conducted in prior years (if previously held) and 

what savings are anticipated; and 

Any olher pertinent information. 

5. Final approval requests. Final conference approval requests are required in all cases. At a 

minimum, conference request packages submitted tor final approval will be appropriately 

staffed and include: 

(For all events) A discussion oflhe mission purpose or focus of the event; 

(For all events) The anticipated date(s) of the event; 

(For all events) A discussion oflhe alternatives to a conference that have been 

considered and why each was found not to be acceptable trom a mission purpose 

perspective; 

(For proposed off-base events) A discussion of the efforts made to secure an on-base 

or Government-owned/provided facility, including possible adjustment of dates and 

locations, and an explanation of why those alternatives do not meet mission 

requirements; 

(For proposed off-base events) A discussion of the geographic siles considered (at 

least 3). Among the factors to be considered/discussed are the "local first" 

considerations as discussed above, per diem expenses, travel costs, proximity to a 

majority of attendees, and consideration of lower off-season rates or peak seasons; 

(For proposed otl:base events) A discussion of the alternatives available at the 

desired geographic site (at least 3). Among the factors to be considered/discussed are 

inclusion on the FEMA list of approved accommodations, willingness to exempt 
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taxes for lodging, distance to nearest airport and availability of free shuttle service (in 

lieu of rental cars, taxis or Government vehicles), cost of the venue if commercial 

space is (0 be rented, and availability of rooms at the established per diem rate. 

(For all events) A proposed agenda with sufficient detail regarding speakers, topics, 

break-out sessions (location and purpose), and social events. Conference-related 

activities should not inappropriately extend the temporary duty (TDY) status of 

attendees or otherwise delay their return to duty; 

(For all events) A itemization of the proposed attendees and support staff 

requirements along with a discussion of efforts taken to minimize attendees and 

support staff; 

(For all events) A breakout ofthe anticipated costs for attendees (estimated travel, 

transportation and lodging), to include an indication of how many attendees will 

participate in a TDY status and how many local arca personnel will participate; 

(For all events) A breakout of anticipated SUppOlt costs, including efforts to reduce 

audiovisual equipment rental and other SUppOlt costs; 

An estimate of the total costs of the conference; 

A cost-benefit analysis completed pursuant to the Secretary of Defense's 

memorandum, dated 27 December 2010, "Consideration of Costs in DoD DecisionMaking." The tool at https:l/www.cape.osd.mil/costguidance/ will be used to 

complete this analysis and the results included with the request; 

(For all events) A discussion/comparison of the anticipated costs with the costs for 

this event in prior years; 

(For all events) A security assessment that addresses threat and vulnerability 

assessments for the proposed conference facility site and any specific security 

requirements for the conference facility or as a result of anticipated attendees or other 

participants; 

(For all co-sponsored events) A copy oftbe approval of the proposed co-sponsoring 

organization (lAW the Joint Ethics Regulation) and a copy of the draft memorandum 

of agreement between the proposed co-sponsors which explains the roles and 

contributions of all parties; and 

Any other appropriate factors or information. 

MEALS AND LODGING: Air Force policy regarding meals or light refreshments at 

conferences will be promulgated in a pending change to AFT 65-601, Volume I. Lodging and 

meals will not be authorized or provided at Government expense to local area attendees except as 

provided in AFI65-601, Volume 1, and with the prior concurrence of the approval authority. If 

meals are provided to personnel ill a temporary duty status, the command or organization 

sponsoring the event must ensure that the appropriate proportional meal rate is used. The cost of 

meals provided by the Air Force must not exceed the per diem rate for the conference location. 

All attendees will be advised to ensure that they cOlTeetly annotate travel vouchers, 

REPORTING: Semi-annual reports of conference approvals will be forwarded (through 

command channels) to SAF/AA by approval authorities every six months by 10 January (for the 

prior July through December) and by 10 July (for the prior January through June), SAF/AA will 

prescribe the fonn and content required for such reports. 
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AUDITING: The SECAF or USECAF will ensure that an audit of conference processing and 

reporting is initiated six months after the promulgation of this policy. and thereatler at their 

discretion. 

Anachments: 

Template - Conference Request (Preliminary Approval) 

Template Conference Request (Final Approval) 
92 


418rms43.eps

CONFERENCE REOUEST - PRELm-flNARY APPROVAL 

[Use additional pages as necessary - relerence paragraph nwnber/title being continued) 

1. REQUESTING COMMAND/ORGANlZA TION: 

2. CO-SPONSORING ENTITY: 

3. CONFERENCE TITLE: 

4. PROPOSED DATES: 

5. CONFERENCE MISSION I)URI)OSE I JUSTIFICATION (be sp~citic. cite tangible 

benefits): 

6. WHAT ALTERNATIVES TO A CONFERENCE WERE CONSIDERED AND WHY WAS 

EACH FOUND NOT ACCEPT ABLE FROM A MISSION PERSPECTIVE? 

7. PROPOSED LOCATION (CITY/STA TE - if known): 

8. PROPOSED VENUE (COMMERCIAL) (GOVERNMENT) (If known be as specitic as 

possible): 

9. HOW HAS THE "LOCAL FIRST" POLICY ON GOVERNMENT TRAVEL AND 

CONFERENCE-RELATED SPENDING BEEN CONSIDEIlliD/IMPLEMENTED? 

10. IF PROPOSED VENUE IS NOT A GOVERNMENT OWNED OR PROVIDED 

LOCATION, WHAT STEPS HAVE BEEN OR WILL BE TAKEN TO SECURE SUCH A 

LOCATION? IF NONE AVAILABLE, WHY? 

11. PROPOSED PARTICIPANTS (Indicate range of grades of participants and initial estimate 

of numbers): 

• MILITARY ATTENDEES: 

• GEN'ERAL OFFlCER."i: 

• DOD CIVILIAN ATTENDEES: 

• POLITICAL APPOINTEES: 

• SES: 

• DOD CONTRACTOR ATTENDEES: 

• NON-DOD ATTENDEES: 

• OTHER INVITEES: 
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418rms44.eps

12. WILL REQUEST INCLUDE SPOUSE TRAVEL FUNDED AT GOVERNMENT 

EXPENSE'! (If yes, indicate number of spouses to attend and provide justification for their 

attendance. ) 

13, WILL CONFERENCE BE HELD IN CONJUNCTION WITH OR BE CO-SPONSORED 

BY A NON-FEDERAL ENTITY OR OrnER GOVERNMENT ORGANIZATION? (If yes, 

provide available details on proposed co-sponsorship arrangement) 

14. WHAT IS THE PROPOSEDIDRAFT AGENDA (Be as specific as possible): 

15. ESTIMATED TOTAL COST (Initial estimate): 

• Travel: 

• Lodging: 

• MI&E: 

• Other Costs (Function space, audiovisual, facilitator): 

16. RESULTS OF INITIAL COST-BENEFIT ASSESSMENT (Use tool at: 

https:II\\ww,cape.osd.mil/costguidance/ ): 

17. IF THIS EVENT HAS BEEN HELD IN PRIOR YEARS, WIIEN WAS IT LAST HELD, 

WHAT WERE TOTAL COSTS AND HOW WILL THE PROPOSED EVENT DIFFER? 

WHAT STEPS HAVE BEEN TAKEN TO ENSURE ECONOMIES/COST SAVINGS OR 

COST REDUCTIONS? 

18. WILL A CONFERENCE PLANNER OR COORDINATOR OR SIMILAR COMMEROAL 

SOURCE OF SUPORT BE ENGAGED? (Describe expected duties and projected costs) 

19. OTHER PERTINENT INFORMATION: 

20. CONFERENCE POC: 

REQUE&! MUST BE SIGNED BY A GENERAL OFFICER OR SES 
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418rms45.eps

CONFERENCE REQUF:ST - FINAL APPROVAL 

[Use additional pages as necessary - reference paragraph number (title being continued] 

1. REQUESTING COMMAND/ORGANIZATION: 

2. CO-SPONSORING ENTITY: 

3. CONFERENCE TITLE: 

4. PROPOSED DATES: 

5. CONFERENCE MISSION PURPOSE / JUSTIFICATION (be specific. cite tangible 

benefits): 

6. WHAT ALTERNATIVES TO A CONFERENCE WERE CONSIDERED AND WHY 

WAS EACH FOUND NOT ACCEPTABLE FROM A MISSION PERSPECTIVE? 

7. PROPOSED LOCATION (CITY/STATE): 

8. WHY IS PROPOSED LOCATION PREFERRED? (\Vhal alternatives were considered~ 

What factors were considered?) : 

9. PROPOSED VENUE (COMMERCIAL) (GOVERNMENT) (Be as specific as possible): 

10. HOW HAS THE "LOCAL FIRST" POLICY ON GOVERI"IMENT TRAVEL AND 

CONFERENCE-RELATED SPENDING BEEN CONSIDERED/IMPLEMENTED'! 

11. IF PROPOSED VENUE IS NOT A GOVERNMENT OWNED OR PROVIDED 

LOCATION, WHAT STEPS WERE TAKEN TO SECURE SUCH A LOCATION? IF 

NONE ARE AVAILABLE, WHY? 

12, WHY IS PROPOSED VENUE PREFERRED'? (What alternatives were considered? 

\Vha! factors were considered?): 
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13. WHAT HAS BEEN DONE TO IDENTIFY AND ASSESS POTENTIAL SECURITY 

OR FORCE PROTECTION CONCERNS? 

• WHAT ACTIONS WILL BE TAKEN TO ADDRESS THESE CONCERNS? 

14. PROPOSED PARTlCIl>ANTS (Indicate range of grades ofpanicipanls and numbers 

expected/invited): 

• MILITARY ATTEi\DEES: 

• GENERAL OFFICERS: 

• DOD CIVILIAN ATTENDEES: 

• POLITICAL APPOINTEES: 

• SES: 

• DOD CONTRACTOR ATTENDEES: 

• NON-DOD ATTENDEES: 

• OTHER INVITEES: 

15. HOW LARGE A SUPPORT STAFF (AIR FORCE AND CONTRACTOR) WILL BE 

INVOLVED? HOW MUCH HAS BEEN SPENT OF PRELIMINARY PLANNING? 

16. WHAT STEPS HAVE BEEN TAKEN TO MINIMIZE THE NUMBER OF 

ATTENDEES, INVITEES AND SUPPORT STAFF? 

17. HOW MANY ATTENDEES ANDIOR SUPPORT STAFF WILL BE IN A 

TEMPORARY DUTY STATUS AND HOW MANY WILL BE FROM THE LOCAL 

AREA? 

18. IS SI>OUSE TRAVEL FUNDED AT GOVERNMENT EXPENSE BEING 

REQUESTED? 

• ARE SEPARATE SPOUSE SESSIONS PLANNED? (Provide agenda) 

• NUMBER OF SPOUSES TO ATTEND: 

• JUSTIFICATION FOR SPOUSE TRA VELIP ARTICIPA TION: 

19. WILL CONFERENCE BE HELD IN CONJUNCTION WITH OR BE COSPONSORED BY A NON-FEDERAL ENTITY OR OTHER GOVERNMENT 

ORGANIZATION'! 

• HAS CO-SPONSORING ORGANIZATION BEEN APPROPRIATELY 

CERTIFIED? (If yes, attach copy) 
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418rms47.eps

PROVIDE DETAILS OF PROPOSED CO-SPONSORSHIP ARRANGEMENT 

OR AGREEMENT (Delineate expected contributions/responsibilities of parties) 

20. WILL FUNIHNG FOR A PORTION OF THE CONFERENCE BE PROVIDED BY 

AN OUTSIDE SOURCE'! (lfyes. describe source and uses of these funds) 

21. WHAT IS THE AGENDA (Attach a copy with as much specificity as possible. include 

"break-out sessions;' social events, collateral activities): 

WHAT ARE THE PROPOSED TRAVEL DATES FOR ATTENDEES? 

WILL THE AGENDA INCLUDE ANY CLASSIFIED INFORMATION? (If so, 

what steps will be taken to safeguard the infonnation?) 

22. HAS A CONFERENCE PLANNER OR COORDINATOR OR SIMILAR 

COMMERCIAL SOURCE OF SUPORT BEEN ENGAGED? (Describe expected duties 

and projected costs) 

23. ANTlCll'ATED TOTAL COSTS: 

Attendee Travel: 

Support Staff Travel: 

Speaker Travel: 

Attendee Local Area Transportation: 

Support Staff Local Area Transportation: 

Speaker Local Area Tmnsportation: 

Attendee Lodging 

Support Staff Lodging: 

Speaker Lodging: 

Attendee MI&E 

Support Staff MI&E 

Speaker MI&E: 

Speaker Honoraria: 

• Venue Rental/Charge: 

Audiovisual and IT Charges: 

Facilitator Costs: 

Other Costs: 
97 

Senator AYOTTE. Let me just ask you, Secretary Hale. Government-wide Federal agencies have reported an estimated $115 billion in improper payments in fiscal year 2011, and in turn, we have 

only recovered, as I understand it, a little over $1 billion of those 

over $120 billion. Now, that is over across all Federal agencies. 

So I would ask Secretary Hale and also Mr. Khan, how much did 

DOD pay in improper payments over the last fiscal year, and how 

much of that amount has been recovered? What are we doing to 

make sure that we are clamping down on overpayments and also 

recovering money that has been overpaid? 

Mr. HALE. We have an aggressive program. I will start with the 

end. We have an aggressive program, we believe, to look for improper payments. I will give you some examples, and it varies by 

the category of payment. 

For commercial payments, we use a system called the Business 

Activity Monitoring (BAM) system. It is a set of business rules that 

looks for payments that look suspicious, and then kicks them out. 

If they have the same number and the same date or a similar date 


418rms48.eps
98 

and amount, it will kick them out for human review. The BAM system has, we think, been quite effective. 

TRICARE, which is our medical system that pays providers, has 

built into all their contracts what amounts to a recovering auditing 

procedure where they look after the money has been paid for 

whether there have been overpayments. 

We are developing, in connection with the legislation Congress 

passed a couple of years ago, a post-payment sampling procedure 

for all of our payment categories so that we will statistically go 

back and verify that we have reasonable levels. I believe it is around $1 billion of improper payments. That is $1 

billion too much, but it is a tiny portion of our budget. We do have 

a recovery procedure. Many of those improper payments are personnel, and we tend to get those back very quickly. We have the 

best set of auditors in the world for personnel, which is all the people that receive the money, and they tend to look very carefully at 

their paychecks and tell us if there is a problem. Many of them will 

tell us if it is too high. They will all tell us if it is too low, I think. 

We are usually able to quickly correct those problems. 

I think we have a good program, but it is one that needs continued attention because we are aware that in this day and age we 

need to have as few as possible, preferably zero, improper payments. 

So let me get you more specific numbers on the exact amount 

and the recovery. 

[The information referred to follows:] 

Fiscal Year 2011: Total Department-wide improper payments: $1139.5 million 

Department-wide error rate: 0.18 percent 

Total underpayments*: $456.4 million 

Total overpayments: $683.1 million 

Total recoveries: $368.6 million 

Recovery rate (1 year) 54 percent (fiscal year 2011 only) 

Recovery rate (cumulative) 93 percent (fiscal years 2004–2011) 

* Underpayments are not subject to recovery. 

In response to your question on what the Department of Defense (DOD) is doing 

to prevent improper payments, we use a computer software tool (called Business Activity Monitoring) that utilizes algorithmic logic to identify potential duplicate and 

overpayments in time for a technician to review and stop disbursement if the transaction is identified as potentially improper. We also analyze the root causes of our 

payment errors to see if technicians need additional training, or if a system edit 

could help prevent future errors. DOD also conducts regular outreach meetings with 

vendors and contractors to explain the importance of accurate invoicing and to encourage single invoice submissions where possible, rather than multiple submissions. For example, if a vendor submits an invoice through regular mail and then 

also submits it electronically, it is possible this could result in a duplicate payment. 

DOD also has an aggressive debt management program to recover improper payments. One area that is proving especially successful is where a debt in one part 

of DOD (let’s say the Army) can be offset against a payment pending in another 

part of DOD (for example, the Navy). We call this our Centralized Offset Program. 

We have also partnered with Treasury by transferring outstanding debts at day 120 

instead of day 180 which is the legal threshold. By doing this earlier transfer, there 

is a better chance for recovery because Treasury has access to collection tools not 

available to other Federal agencies that enhance the collection of debt. 

Senator AYOTTE. I appreciate that. 

Mr. Khan, I do not know if you had anything to add to that. 

Mr. KHAN. I am not going to dispute the numbers that Secretary 

Hale has just mentioned. It is just that going back to fiscal year 

2010, we had concerns about DOD not including all classes of 

99 

transactions which were captured in the methodology for calculating improper payments. We understand this year—the class of 

transaction I am referring to is commercial pay—that that is included in the methodology for calculating improper payments. We 

do have work underway to look at—essentially it is done on a sampling basis as to how robust the methodology this year is to come 

up with the improper payments numbers. Again, we are also going 

to look at recovery auditing as part of that body of work. So we will 

have more information forthcoming later on this year. 

Senator AYOTTE. Thank you. 

I just wanted to ask one final question with the chair’s permission. 

We have this problem with the end-of-the-fiscal-year spendathon. 

How do we solve this? How do we get to the point where there is 

not this position and what are we doing about it, this idea that at 

the end of the fiscal year, program managers and everyone involved have to try to find ways to obligate money so that they are 

getting to the end of the fiscal year and we do it on things that 

we do not need because of this concern that if you do not do it, you 

come before us and say, well, they did not obligate all their money 

last year, they did not need it all, so we can give them less. 

So help us with this because, I think, it is not only a problem 

in DOD, I think it is a problem across the Federal Government. 

But I know that it is a problem in DOD because I have spoken to 

people at the highest levels about it and I have spoken to people 

at the lowest levels about how this happens. 

Mr. HALE. I share your concern. There are some rules in place 

that Congress has put in place that we can only obligate so much 

of our operating dollars in the last 2 months, and we do adhere to 

that. But it is still a lot of money, and I do not think it solves it 

all. 

I will tell you something called the Budget Control Act is probably one of the better ways to do this. There is just going to be a 

lot less free money, and we will be looking for ways to reprogram— 

and I would like to address that in a moment, if I might—funds 

to meet what are probably more than $3 billion of unbudgeted fuel 

bills, some very substantial increases above budgeted levels for operating tempo in Afghanistan. I think it will soak up a lot of the 

dollars. 

But I hear your concern. In a private business, if you have found 

a way to save money at the end of the year and still meet customer 

needs, you would probably get a bonus. 

Senator AYOTTE. You would get a bonus. 

Mr. HALE. We, unfortunately, do not do that, and there is some 

of what you said, that we do judge, to some extent, by the amount 

of obligations. 

So I will not sit here and tell you it is not a problem. I think 

that tighter times will help correct it, and there are some rules in 

place that try to discourage it. 

Do any of my colleagues want to add to that? 

Mr. WESTPHAL. I totally agree. 

The other issue that we get, as we work through Continuing Resolutions and the lack of a budget, we are also in many cases underexecuting on parts of our budget. That creates a different kind of 

100 

culture within the enterprise about how dollars are allocated. So 

we need a tighter process all the way around. We need a better 

sense of our budget obligations where Congress can be helpful and 

we need a better sense ourselves to manage through that. 

I think we are getting the mechanisms. I do not know if you can 

talk about this. In the Army we have some mechanisms to address 

this end of the year. 

Ms. MATIELLA. We do a very aggressive major review. For example, we are doing that right now. We are looking at obligation 

rates. We are making sure that folks are on track according to 

their plan because everybody has a plan, an expenditure plan, out 

there. So if we see that they are not spending according to plan, 

then we ask them why and they have to come back and give the 

reasons. Then at that point, we evaluate whether they are even capable of spending the money. If not, there are other areas where 

there is a need. So the mid-year review process looks at that and 

tries to push back on people spending according to plan, and if they 

are not able to, what is it that is out there that is unfunded that 

needs to be addressed. 

Dr. MORIN. Ma’am, if I could add on behalf of the Air Force. We 

are working on a number of lines in order to address this challenge. As Mr. Hale said, some of them are getting addressed naturally by the more scarce dollars, and the fact that the Air Force is 

looking at a more than $1.4 billion fuel price shortfall will mean 

that we are tapping all of our other operational accounts looking 

for the sources to pay for that. So that will reduce available funds 

for all activities whether end-of-year spending or otherwise. 

But I would also say that we are looking at some of the key areas 

of challenge. End-of-year spending typically migrates to things like 

information technology and support contracting. For information 

technology, as part of our broad enterprise-level efficiency initiatives, we have moved to more strategic sourcing and enterpriselevel buys of that technology, which will make it harder for local 

operations to identify and buy ahead of need, if you will, for information technology because they have available resources. It will 

bring those monies back to headquarters for prioritization. 

Similarly, service support contracts are being very carefully 

tracked as part of our efficiency effort. We are projecting a 30 percent decline in service support contract funding for 2013 compared 

to 2010, and we are enforcing those restrictions. So again, the ability to migrate dollars into that at the end of year is constrained. 

But I think most importantly, what we are doing is working to 

change a culture of spend-it-all. You particularly see this with our 

acquisition programs where our progress reviews that the financial 

and acquisition personnel conduct out in the field with the program 

managers and program financial officers are focusing on rightsizing and right-timing resources. It may be that a program needs 

more resources in 2012 and fewer resources in 2013 because a particular piece is available earlier. It may be the opposite. We work 

to realign those resources, take money that is made available and 

apply it to higher priority warfighter needs. We have an open discussion with those program managers where they are incentivized 

to find savings to address the substantial list of execution-year 

101 

challenges that emerge in the context of running an enterprise of 

the scale of the defense establishment. 

Senator AYOTTE. I thank you all. I want to thank the chair for 

her patience. 

Also, I would suggest if it is not already a criteria, that performance evaluations be part of the measure, how much money did you 

return to the taxpayers. Thank you. 

Senator MCCASKILL. It reminds me of that episode of The Office 

where Steve Carell found out that he had $4,300 left and he had 

to spend it by the end of the day or he was going to lose it in next 

year’s budget, and they had to decide whether to buy a new copier 

or new office chairs. Near the end of the day, the CFO in the office 

explained to him that he could get 15 percent of it in a bonus if 

he did not spend it at all. You can imagine what he decided to try 

to do. 

Unfortunately, we do not have that at DOD, and we waste a lot 

of money because of it. 

Mr. HALE. I wonder if I might say a word about reprogramming? 

This is an area that is very important to DOD. We depend on 

this, and we work hard to be transparent and to have discipline in 

this process. I am well aware that concerns have been raised in 

Congress and by a number of members about it. 

But I did want to put it in context for you. Last year in 2011, 

we did policy reprograms. Congress allows a certain amount of mechanical transactions between funds, which are just that; they are 

mechanical. Our policy-related ones were about $18 billion. That is 

a huge sum of money, but it is less than 3 percent of our budget. 

We put budgets together a full 2 years in advance before we complete executing them. 97 percent 2 years in advance does not sound 

that bad to me. We need that flexibility. 

I understand we also need to do better at things like new starts 

and to minimize them—and I am working to do fewer September 

reprogrammings. The last one just did not work out for a variety 

of reasons. But I would appeal to you to not judge the whole process harshly. We need it to meet the needs of the warfighters and 

to make effective use of taxpayers’ dollars. 

Senator AYOTTE. I appreciate that and I understand that. I think 

where we become concerned, is when it is leading us in directions 

that we did not authorize or we said as a policy matter as a group, 

we do not want you to go in this direction. That is where we become concerned or starting something new. So I think those are the 

areas where we become particularly concerned. I am not saying 

that you do not need flexibility. So I appreciate that very much. 

Senator MCCASKILL. I am going to try to get to some of the nittygritty on some of the things we have talked about today now. I do 

think we do need context. While I understand this conference in 

Las Vegas is deplorable and embarrassing and horrible for taxpayers, if you look in context, the reason it has become such a big 

deal is it is so easy for everyone to understand. It is so easy for 

everyone to visualize it. Therefore, it is very easy to communicate 

it, and it is the kind of thing around here that allows everyone to 

do righteous indignation and photo ops because it is bad and it is 

easy for people to understand. 

102 

Now, this stuff is not. It is the opposite. It is very difficult to understand. I have really worked at it to try to understand it. 

But just to give context so people understand, we have a defense 

integrated military human resource system that we spent 12 years 

on and more than $1 billion in an effort to modernize the military 

payroll and personnel systems. Of course, we had to cancel it 2 

years ago. Now, if you look at that, that makes that money spent 

on that conference in Las Vegas look like couch change. 

If I look at all the 11 ERP programs, we now cumulatively are $6 billion over budget and 31 years behind schedule. Now, that is 

a problem. I know you are all working on it and I sense how focused you are and I do think improvements have been made. So 

I am not here to say that we are not doing better because I think 

we are. But I do think that if everyone out there understood the 

magnitude of the issues that we face in terms of financial accountability in DOD, maybe they would be more focused on this than on 

the clowns and the mind readers in Las Vegas. 

Let me talk a little bit about the inability to account for funds 

in Afghanistan. I have been worried about the accuracy of distribution of our money to the payroll of the Afghanistan National Army 

(ANA). I know that the IG identified almost $50 million worth of 

errors in the ANA payroll advances. They concluded this was possible because DOD did not have written procedures or perform adequate reviews and they relied on summary and not detailed data 

when distributing the quarterly advances. 

After all the problems we had in Iraq and after all the reports 

of the Special Inspector General for Iraq Reconstruction there, how 

is it possible that we still have this level of failure in terms of written procedures or review as it relates to the expenditures of funds 

in Afghanistan? 

Mr. HALE. I am not familiar with this, I am embarrassed to say. 

I will get familiar with it. I am going to ask if any of my colleagues 

are aware. 

Ms. MATIELLA. I am not familiar with the issue. However, I can 

propose that anytime there is a problem, it is because the systems, 

like you said, are not there to do the work that they need to do. 

As you well know, in the Department of the Army, our legacy systems just cannot do that kind of work. That is why we are rolling 

out a new system, a system that will have much more discipline, 

that is much more integrated than the ones we have now. 

Senator MCCASKILL. Is the ANA payroll coming through the 

Army or is it coming through OSD? 

Mr. HALE. I think it would be through the Army, and we do pay 

them. This is American money. I believe it is done through the 

Army. 

Senator MCCASKILL. I understand. There is a lot of the subject 

covered here. If you will get back to me on this particular problem 

because I want to make sure that we are doing better on that. 

Mr. HALE. We will. 

[The information referred to follows:] 

Since the Department of Defense (DOD) Inspector General (IG) investigation was 

completed in December 2011, the NATO Training Mission-Afghanistan/Combined 

Security Transition Command-Afghanistan (NTM–A/CSTC–A) has redesigned the 

Afghanistan National Army (ANA) payroll distribution process, implemented internal control procedures, and developed detailed standard operating procedures. The 

103 

payroll advances described in the DOD IG report have been replaced with the current Direct Contributions process whereby ANA budget managers are provided a financial commitment ceiling from NTM–A/CSTC–A, and Financial Management 

Oversight offices at NTM–A/CSTC–A provide oversight and control. Furthermore, 

NTM–A/CSTC–A has put into practice four initiatives that have improved internal 

controls and mitigated fraud within the ANA payroll process: integration of financial 

advisors who work on-site in close cooperation with the ANA Corps Finance Officers; 

implementation of a monthly pay verification process; implementation of a centralized pay system; and improved banking operations. 

The ANA payroll funding is provided by the Office of the Secretary of Defense 

(OSD) to Army who releases the funding to NTM–A/CSTC–A. During the commitment letter process between NTM–A/CSTC–A and the Afghans, OSD is notified of 

the total payroll fiscal ceiling for Direct Contribution to the ANA. The commitment 

letter requires ANA budget managers to specifically identify which items require 

funding by Afghan budget code (e.g., salaries and food, incentives) instead of an 

overall bottom line amount. Any deviation at the fund code level requires written 

approval and an amendment to the distribution authorization. When funds are required by the Afghans, a funding request from the Afghanistan Ministry of Finance 

is processed through the Defense Finance and Accounting Service and wired to the 

Ministry of Finance into the ANA corporate account. 

Senator MCCASKILL. I noticed that Mr. Work said that the Navy 

will be shutting down more than 100 legacy systems over the next 

few years. Do the other branches have numbers for me on how 

many legacy systems and what the plans are that you are going 

to be shutting down? Air Force or Army, do you have any numbers 

for me on legacy systems? 

Ms. MATIELLA. Overall, we are going to shut down 700 legacy 

systems as we implement the different ERPs that we have. So to 

date, for example, with GFEBS we have shut down 80 systems so 

far. But in the long run, our goal is to shut down 700 systems. 

Senator MCCASKILL. Okay, and the Air Force? 

Mr. TILLOTSON. For the two ERPs, DEAMS and ECSS, the target 

was nine systems, as I recall, for DEAMS and about 240 systems 

for ECSS. The ECSS shutdown, obviously, has been delayed. So 

those plans, which should have been executing over the next several years are now put out. As we deploy DEAMS, over the next 

2 years, we will get a partial shutdown for each base that we go 

to. We will not get the full shutdown until DEAMS goes to full 

operational capacity, which is about in 2016 or thereabouts. 

We are looking, however, at our broader range of business systems, and I will get back to you with the kinds of numbers we are 

looking at there. Those are unrelated ERPs. This is part of the 

broader business system review that we have been conducting all 

along but we have put renewed emphasis on as a result of the 2012 

language that directs us to go back and look at business expenditures of $1 million or more over the Future Years Defense Program. 

[The information referred to follows:] 

Yes. Separate from the 2 Enterprise Resource Planning systems previously described the Air Force plans to shut down 65 legacy systems over the next 3 years. 

Senator MCCASKILL. Are there any legacy systems that you want 

to speak to at OSD? 

Ms. MCGRATH. I can add that we just submitted our annual report on business operations, and we do articulate a termination or 

shutdown of 120 systems across the board. I think it is important 

to note that regarding systems and instantiations of systems, there 

is sometimes an art in the way we count. The 120 that we report 

104 

back to you this year comes from our DOD IT repository. What we 

are counting includes multiple instantiations of systems. Not to 

make this more complicated, but there are many different versions 

of systems that are out there. So when you are hearing really big 

numbers, all that is very good news, but the way we count from 

a departmental level, we would count those multiple instantiations 

as one, even though there may be more than one out there in existence. 

Senator MCCASKILL. What you are referring to is you would have 

one system with a lot of modifications that had occurred over time, 

and so you are counting each modification as a separate system as 

opposed to that entire enterprise. 

Ms. MCGRATH. Or if we have a system that is deployed in the 

Navy and it is the same one that is deployed in the Army, we 

would count those as two instantiations of the same system. They 

both have the same name. 

So, I would just caution: This has been a long dialogue with regard to how we count systems and what those definitions are. 

Again, it is all very good news in terms of shutting down and 

rationalizing the legacy environment. When we report on an annual basis to you, we are very specific about the authoritative data 

source that we use. 

I can say unequivocally we have terminated 120 systems that 

were in the DOD inventory last year, in addition to some of what 

the military departments are articulating in terms of various 

instantiations. It is all good news, and I do not mean to complicate 

it, but it is important to understand where the numbers come from. 

Senator MCCASKILL. Yes, Secretary Westphal? 

Mr. WESTPHAL. Madam Chair, if I could. The Army went through 

a series of portfolio reviews on each of our enterprise systems. I 

just held a meeting on each one of them to have a report on how 

many of the legacy systems we are in fact—as we integrate these 

enterprise systems, we are eliminating. 

I have asked our staff to get together with those two great folks 

that you have behind you there, Mr. Levine and Mr. Carrillo, to report to them about the results of the portfolio reviews. I do not 

know if they have received that report yet. But I wanted the committee—because I think the three Under Secretaries have been in 

great partnership with your staff over the course of the last year 

and a half meeting on a regular basis and sending our folks to report on these activities to get some feedback, but also to keep you 

and the membership involved. 

So on these portfolio reviews, I think at least the Army will be 

able to give you a pretty good assessment of where we are in terms 

of those legacy systems and what progress we intend to make this 

year as we integrate across all these different portfolios. 

Senator MCCASKILL. Okay. 

You mentioned GFEBS, let me go down that road. 

According to the DOD IG, GFEBS does not have effective internal controls and, as a result, does not contain accurate and complete general ledger information as required by applicable law. 

At about the same time, GAO reported that approximately twothirds of the invoice and receipt data must be manually entered 

into the Army’s GFEBS system from the invoicing and receiving 

105 

system due to interface problems, and the system’s limitations significantly affect users’ abilities to perform their daily task. As a result, Army installations were certifying year-end data with caveats 

and notes relating to inaccurate, incomplete, and missing data. 

This system, this General Fund Enterprise Business System, was 

initiated more than 7 years ago and is scheduled to be effectively 

deployed this summer—fully deployed. How soon do you think you 

can address these problems, and do you agree with both the findings of GAO and the DOD IG as it relates to these problems? 

Ms. MATIELLA. Some of this work was done almost 2 years ago, 

and since then, GFEBS has gone through a lot of reviews and a 

lot of fixing. Like you said, at this point we are almost fully deployed. We have 45,000 users on the system. We project to have 

about 55,000 users in the end. We have closed out several years. 

We got a clean opinion on appropriations received. After exam 1, 

which examined three different installations and how they used 

GFEBS, we got a qualified opinion on that. We are getting ready 

to roll out exam 2. So we are doing a lot of self-checking, and 

through that self-checking, we are improving GFEBS. 

At the time that they did the audit, we were not as compliant 

as we are now. Right now we are 95 percent compliant with Standard Financial Information System (SFIS) requirements which DOD 

requires and that the Army Audit Agency (AAA) checks for us. So 

we have made a lot of improvements in GFEBS since that time. 

However, we still have problems and we continue working on 

those problems. The Army has been very aggressive, but it is a system that shows—I have talked with different CFOs throughout 

Government about this software. It is systems, applications, and 

products (SAP) software. I have talked with them about whether— 

for example, SAP is used by the Department of Agriculture who 

has a clean opinion and got a clean opinion with this software. So 

I have talked to them about how they rolled it out, how they were 

using it, and they are all believers in the fact that this is good software. So it is just a matter of us learning how to use it, making 

sure that we are improving the way we use it, so that we are interfacing into it correctly. We do have interface problems, but we are 

getting data that drops out of it. That itself has also improved. Our 

reject rate is much lower than it used to be. We are tracking it. 

We send weekly reports to the CMO and to Secretary Hale about 

how we are improving those reject rates. So we are holding ourselves very accountable for improving it. So we see a bright future 

for GFEBS. 

Senator MCCASKILL. Mr. Khan, do you have any comment on 

Secretary Matiella’s comments? 

Mr. KHAN. The GFEBS problem highlights an issue which is a 

bigger issue, the issue of the manual work-around that we highlighted in our report. That is because of the information the ERPs 

are going to be receiving from the feeder systems, the older systems, which are going to have to continue operating because there 

are so many of them. This is an issue which other ERPs also will 

be facing because the system operational entries of the feeder system and then that has to really get communicated into ERPs. If 

that is not done correctly, then there would be a need for manual 

work-arounds. 

106 

Ms. MCGRATH. Ma’am, I would just agree with what Asif just articulated in terms of the challenges, in terms of passing the data 

from the legacy environment into the ERP. We do not have standard data across the enterprise, and so it becomes evident in the implementations. That is why we are working from an end-to-end perspective, because if we do not, then we will never fix the ECSS. We 

have to take that broader perspective to your point earlier about 

the business process reengineering. It requires us to bring forward 

all of the legacy practices and change them so that when we are 

implementing these ERPs, we have a holistic approach to the data 

and the systems and the training aspects that have been identified. 

Senator MCCASKILL. Stepping back from this, do you think we 

have made—if you look at what has been a common problem in all 

of these struggles, it has been data standardization and it has been 

the specs on interface. So if 5 years ago, on a scale of 1 to 10, we 

were a 1 on data standardization and interface specs, are we at a 

5 now? Can we measure our progress? Because really that is what 

has caused a lot of these overruns and the date sliding and a lot 

of the money that has been wasted. Am I correct? Those two 

issues? 

Mr. WESTPHAL. You are, Madam Chair. I will give you one example of what I think you are trying to show here. If you take the 

Army’s personnel system and its financial systems, they were two 

separate systems that did not interface. So consequently when an 

auditor says how do I know Colonel Westphal is really married? 

Colonel Westphal has been in the Army for 30 years. Somebody 

goes back and looks and cannot find a marriage certificate because 

30 years ago there was a different way of doing that and the personnel system was not interfacing with the financial system. So 

this enterprise system, IPPS-Army, will integrate those two systems, and it will be one individual who will enter data. So you will 

not have different stovepipes entering separate data that is not 

going to give that auditor the things he needs. 

The GAO was right. That documentation was not there, and 

therefore it could not verify that we were making the right payments at the right time at the right place. We hope to fix that. 

Unfortunately, IPPS-Army is not going to be fully deployable 

until 2017. So we have a lot of work to do between now and then 

to get those records in place, first of all, to come up within the 

Army and figure out what are the rules about what documents are 

going to be acceptable. A marriage certificate may be acceptable in 

one place but somebody else might say that is difficult to get. They 

come in different forms and shapes from each State. So we have 

to have some way to line up those requirements across the board, 

and that is what we are working on. 

Senator MCCASKILL. Mr. Khan, what would your reaction be to 

overall where are we on data standardization and interface specs? 

Mr. KHAN. Data standardization is very critical, especially given 

the accelerated date of 2014 and the plans of the Services to use 

the legacy systems longer than expected without data standardization. It is not really going to be feasible how the information from 

the legacy systems or the feeder system is going to get input into 

ERPs or how they will be able to produce financial statements. 

107 

Going back to your original question, where we are compared to 

5 years ago, the SFIS initiative—that was the initiative to standardize the data within DOD. That really has gone through fits and 

starts and really has not reached the degree of maturity it should 

have to this point in time. So it still needs a fair amount of work 

to get to where it needs to be. 

Senator MCCASKILL. Maybe I need to talk to Secretary Panetta 

and say we need a deadline for data standardization. We will get 

to some significant manual work-arounds on that. 

Even before Secretary Panetta established the 2014 goal, the 

Navy plan called for achieving an audit-ready SBR by the end of 

the third quarter of 2013. The most recent update we received indicates that that Navy schedule is slipping. For example, the Navy 

had planned to begin audit for its reimbursable orders in the second quarter of 2012, but now it has skipped to the first quarter of 

fiscal year 2013. You had planned to begin audit of its requisitioning orders in the second quarter of 2012, but that has slipped 

to the second quarter of 2013. You had planned to begin audit of 

its contracts in the second quarter of 2012. That has slipped to the 

third quarter of 2013, and planned to do an audit of its FBWT in 

the fourth quarter of fiscal year 2012, but the goal has now slipped 

to the fourth quarter of 2013. 

What is the postponement of these milestones about, and how is 

it going to impact your 2014 deadline? 

Ms. COMMONS. Madam Chairman, we still believe that we will 

meet the 2013 date that we established. We believe that by the end 

of fiscal year 2013, that we will have an audit-ready SBR. 

What we are finding in our discovery, as we go through these 

processes, we are finding that we need to take more corrective actions than originally planned. We want to go through a very deliberate process. 

We are not rushing this just to meet a deadline. We want to ensure that when we make changes to our business processes, that 

these are long-term improvements. That is one reason that we are 

focused on our business processes end-to-end, not just looking at financial pieces, but we are going from the beginning of the process 

to the very end to ensure that when we make changes to the process, that it will result in an audit-ready statement. So much of the 

delay is that in discovery, we have found that we need to make 

more corrective actions. 

With regard to reimbursable work orders, we realize that it is a 

government-wide problem. It is not simply a problem that DOD can 

solve by itself because we get reimbursable work orders from across 

the Federal Government. We need to have a methodology for accounting for that, and I believe we are all working to figure out exactly what to do in that process so that we can do the necessary 

eliminations. 

So basically we understand that we are moving some of the dates 

out but primarily because the corrective actions will take some 

time. We also need to have time to test those corrective actions to 

make sure that the things that we have put in place actually work. 

So we want to have a very deliberate process to be able to have 

an audit-ready SBR. 

108 

Senator MCCASKILL. Mr. Khan, let me ask you about one of your 

findings—I think it was just last month—about the difficulty the 

Army is going to have meeting the 2014 date because of deficiencies with payroll processes and controls. 

One of the findings was that the Army did not have an effective, 

repeatable process for identifying the population of Active Duty 

payroll records. This is a big deal because it is $46 billion. It is a 

lot of money. Could you comment on whether or not you think that 

the Army has established a viable approach to addressing this particular finding in your audit? 

Mr. KHAN. At the point in time we had done our field work, they 

were in the process of addressing that issue, but we were not able 

to validate whether or not they had come up with a repeatable 

process. We had highlighted in that report many of the processes 

and systems that are used by the Army are also used by the Air 

Force and the Navy. So we just wanted to highlight that. That is 

an issue that both the other two Services should also really keep 

in mind when they are coming up to their SBR timeline. 

Senator MCCASKILL. Do you think you have made some improvements in that area? Do you think you have something that will 

pass the standard in terms of an effective, repeatable process? 

Mr. WESTPHAL. We think we are on our way to get there, but 

boy, we are working very hard right now to get that documentation 

and get it ready for 2014. So we are working very hard on it and 

we will keep you apprised of that as well. 

Senator MCCASKILL. In 2010, the Marine Corps asserted that its 

SBR was ready for audit but was unable to get the clean audit. 

GAO reviewed the audit findings and concluded the failure was attributable in part to the fact that the Marine Corps did not have 

adequate process and system controls and controls for accounting 

and reporting on the use of budgetary resources. The Marine Corps 

developed an action plan and milestones in response to that finding 

and sought a new audit for fiscal year 2011 SBR. However, GAO 

found that many of the Marine Corps’ actions did not address the 

specific auditor recommendations and other actions were not adequate to correct the underlying problems. 

Some of this is just underlying internal control problems, which 

if you do not get that fixed, you cannot dress it up. You have to 

start with the internal controls or you are never going to get that 

clean opinion that you are all working so hard to get. 

So talk to me about that. I would like both Mr. Khan and Secretary Commons to address, why would you push for another audit 

if you had not addressed the internal control issue? Was it a 

miscommunication or a lack of understanding about what was 

going to be necessary? Or did you think you had solved the problem 

and were disappointed to find that you had not? 

Ms. COMMONS. The Marine Corps has, in fact, addressed many 

of the issues that were identified in the findings and recommendations. Many of those were systems issues which will take time to 

correct. So we felt it important to continue the audit because of the 

lessons that we are learning from the Marine Corps. 

We agree with you that internal controls are key. We have to address the internal controls across DOD, not just in the Marine 

Corps but across the entire DOD, and the Marine Corps has taken 

109 

action to do that. In fact, the DOD IG recommended that we continue the audit because the Marine Corps had made significant 

progress. So we believe that we are solving those issues that we 

can do in the short-term. There are some long-term issues we are 

going to have to continue to work on. 

Mr. HALE. Can I add a thought there, Madam Chairman? 

Senator MCCASKILL. Sure. 

Mr. HALE. I believe that we would have been better off to jump 

in the pool and get a private auditor to look at what we have done. 

Often we have done this for small parts. The Marine Corps was an 

exception where we did it for the entire SBR. But we just found 

they know a lot more about what we need to do frankly, and we 

did not know what we did not know. So I think it has been very 

helpful to have that audit. We have learned a great deal, and I 

have encouraged the other Services and they are doing it. Whenever they think they are reasonably close—I realize we cannot just 

do this whimsically, but when they are reasonably close, let us go 

get somebody in here and pass the test or not pass the test, and 

if we do not, they will usually tell you why. 

Senator MCCASKILL. They better. That is part of their job. Right, 

Mr. Khan? 

Mr. HALE. They should, as you know from your career better 

than I do. 

So I think this strategy of going to audit when we think we are 

reasonably close is a good one. It is not cheap, but it is not cheap 

to not get there either. So I endorse it strongly, and we are going 

to pursue it. 

Senator MCCASKILL. Do you have Yellow Book experience, which 

you all know, I assume, Yellow Book is the Bible of government auditing? Do you have people internally that are familiar with Yellow 

Book standards and auditing processes? How much of this are we 

outsourcing? Frankly, I think going through a trial run audit is a 

great idea. It is a great learning process, but if we are buying one 

from a full-blown private accounting firm, as complicated as your 

enterprises are, I do not want to think about what your bills are. 

In fact, do not tell me because then I will be off on a tangent—— 

Mr. HALE. So I will not tell you. 

Senator MCCASKILL—about contracting for personal services that 

are beyond the pale. 

So why can we not get either through DCAA or—one time I tried 

to count how many auditors were in DOD between IG, DCAA, 

DCMA, GAO, everybody who worked at DOD, and I think I got to 

30,000 when I stopped counting. Now, a lot of them are not doing 

audit functions. A lot of them are doing different kinds of functions, 

but they are within organizations that would be considered auditlike. 

So could we not get a team of trained government auditors within DOD to be a roving squad to put people through their paces on 

audit work and come up with findings and would be illustrative to 

these different branches as to where they are in the process that 

maybe would not be as expensive as hiring a full-blown audit from 

the outside? 

110 

Mr. HALE. First, we are trying to develop more skills. I wish we 

had more. We have some. We have some good people, and I will 

ask my colleagues to comment on this. 

As far as using the internal audit agencies, it will violate the 

independence rules. GAO will not allow that. 

Senator MCCASKILL. Not GAO. What if we got a special hit 

squad from DCAA and—— 

Mr. HALE. First, DCAA is a pricing audit agency. They do not do 

financial statement audits. They are auditors. 

Senator MCCASKILL. Yes, but a lot of them are Yellow Book. 

Mr. HALE. I have them pretty busy doing other things right now. 

Senator MCCASKILL. I can go find you a bunch—I can go out to 

State auditors offices—— 

Mr. HALE. You could do that. 

Senator MCCASKILL—and find you a team of government-trained 

auditors that you could get a lot less expensively than $500 an 

hour. 

Mr. HALE. I think we would get into independence problems 

there too if they really worked for me or for any of the unders. 

Senator MCCASKILL. Yes, but you are not trying to do this to get 

a clean opinion. You are doing it for training. 

Mr. HALE. Let me ask the Services to comment on their remediation efforts and the extent they have people. 

Dr. MORIN. Ma’am, if I may. 

Senator MCCASKILL. Yes. 

Dr. MORIN. Ma’am, we have been trying to do this within the 

limits of audit independence and have had some reasonable success. The Air Force Audit Agency has provided a team of about 25 

of their auditors that are focusing for us on just targeted areas of 

internal control investigation that directly support our audit readiness effort. They are not telling me, go in and do this to pass an 

audit, in quite those terms, and they are not themselves auditing 

in that sense, but they are doing very targeted investigations of 

key controls that are driven by our audit readiness plan. Then we 

will, of course, have another, a separate auditor, come in and do 

an eventual examination. 

Senator MCCASKILL. Of course. Obviously, I am not suggesting 

that we would ever hire anyone to do audits internally. That would 

not work. But having the expertise inside that can help with guideposts. I get that you wanted to try again because you had made 

progress and you wanted to see how much progress you had made. 

I think that is all good. But the basics of internal controls I think 

a lot of government auditors could have helped with that would 

have not needed a whole—— 

Ms. MATIELLA. I believe that certifications are very important. 

They show a skill set. For example, the certification of being a Certified Public Accountant (CPA) is an important skill set to have 

when you are trying to become auditable or create financial statements that are auditable. I am a CPA. My audit director is a CPA. 

It is a very valuable skill to go out and hire. It does make a difference in terms of knowing what is required by the Yellow Book. 

We also use our AAA to a large extent to check us, to be independent but also to check us to make sure that we are doing the 

right thing. 

111 

Senator MCCASKILL. I think that is great. 

Mr. WORK. Ma’am, we are doing something very similar. We 

have about 30 members of the Naval Audit Service that go out. 

They did surprise audits. The first thing they looked at was internal controls. We identified a major issue there. Then we started to 

populate that around all of the different budget submitting offices. 

Then the second thing that we go in and look at is, do they have 

the right documentation. These are lessons learned from the Marine Corps audit. 

So we will continually step up what they will look at. 

But I think, going back to what Mr. Hale said, saying we will get 

to a SBR by 2014, put a search light or a flashlight on all of the 

different internal processes we have, and that has, quite frankly, 

illuminated a lot of problems that we did not know existed. So as 

Ms. Commons said, this is a very deliberate process and the more 

help we get from—the Marine Corps audit was very important for 

all of us because it really set the bar on what we have to do. So 

I believe that we are doing much of what you are suggesting right 

now. 

Senator MCCASKILL. Good. 

Dr. MORIN. Senator, can I add one more point on that topic, if 

I may? 

Senator MCCASKILL. Sure. 

Dr. MORIN. One of the things that we did not probably anticipate, when we hired these independent public accounting firms to 

do examinations and do limited scope looks at our assertions, is in 

some cases they have come and told us we were going further than 

we needed to in preparation for this assertion. I had independent 

public accounting firms on two of the assertions I have done where 

they identified areas where our plans, they felt, went beyond the 

standards that were required. Now, other areas they said, even 

though they gave us favorable opinions, there are other areas for 

improvement. But in certain cases they said, you are moving towards doing a full financial system certification for a particular 

system, and that is not a system of record and you probably do not 

need to go to the expense of doing that. So there is return in having these outside eyes on the problem that goes beyond just working through the process. Sometimes that external commercial audit 

perspective tells us we are making the problem harder than it had 

to be. 

Senator MCCASKILL. I am sure all the outside audit firms that 

are watching this hearing, glued to whatever place, are very grateful to you right now because I summarily dismissed how expensive 

they were, I think you were pointing out that there can be value 

added is important. 

I only have two more questions and then we will submit some 

more to you for the record. I will note that Senator Manchin had 

more contractor-related questions that we will submit. I will not go 

into them now, but I think they are important. Obviously, I think 

all of you know how engaged I am in the contracting issue. But he 

wants to know about the costs of benefits to veterans versus the 

overseas contractors, and I will make sure that those get in the 

record for his answer on that. 

112 

Let’s talk about DEAMS for a minute at the Air Force. In February, GAO reported that the interfaces on DEAMS and the legacy 

systems at the Air Force were inoperable and required reports either that are not being produced or that are inaccurate or incomplete. The interface problem with the Standard Procurement System (SPS) became so serious that that interface was turned off and 

the data was manually entered into DEAMS. In an April 2011 survey, 48 percent of the DEAMS users said their workload has increased as a result of DEAMS and only 10 percent felt that their 

work was more accurate. Clearly that is not a good outcome for this 

system since we have spent 8 years and $330 million on it. 

What is your response to these problems that have been so recently pointed out? I would like Mr. Khan to also speak to that. 

Dr. MORIN. Yes, ma’am. Now, it is important to note the GAO 

study was just published a couple of months ago, but it was a result of field work that occurred predominantly in the last calendar 

year, some of it early in that year. So there has been significant 

progress since then. 

Let me begin with the interface issue. You referred to the SPS 

interface, and it is a portion of that interface which does not work. 

We are successfully importing data from the standard procurement 

interface, which is one of our main basic contracting systems, for 

new contracts. Modifications of existing contracts are the part that 

do not come through. So 95 percent of the new contracts come 

through fine. For the modified contracts, the majority need to be 

handled manually. That is among the 245 areas that were identified for improvement in the course of moving towards stabilization 

of the system ahead of the operational assessment that I referred 

to in testimony earlier. There are some inherent limitations in 

working with an old system like SPS, and that is a system that has 

been looked at for replacement for some time and has been frozen 

and in place for a while, which is a problem. We believe that with 

the bulk of the new contracts coming in successfully and with some 

process improvements, we can get to an acceptable level of performance there. 

On the workload piece, if staff were promised that DEAMS would 

yield a lightening in their workload, that was not a good promise 

to make. ERPs in general are not workload savers and they should 

not be sold that way in comparison to the legacy systems which we 

have in a lot of the DOD which are quite easy to use. They are 

quite easy to use in some cases because they do not have appropriate internal controls. So doing the work properly sometimes 

takes more effort. Directly linking obligations to specific contracts 

and tying that through to a receiving report requires work. 

So I do not want to overpromise here. There are areas where we 

can improve workload. Again, we had laid in 245 specific discrepancies we were seeking to resolve as we worked through to stabilization of DEAMS. We have addressed all but about 40 of those. 

The remaining 40 we anticipate being closed out by the second 

week of May, so within a month. That will be when we move into 

the operational assessment of that system at Scott Air Force Base. 

We take the workload piece seriously, but we do not anticipate 

fielding a system that is going to make everyone’s life much easier 

because we are fielding a rigorous system. 

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Senator MCCASKILL. I really understand the point you are making because I think one of the reasons we got into this mess is everybody wanted to hold onto legacy systems. So every time they 

were asked, it was, oh, no, this is horrible. It is just way too much 

work. So there was this cultural predisposition towards holding 

onto legacy systems which frankly has caused a lot of the interface 

problems and a lot of the time slippage and a lot of the budget 

overruns and so forth. 

Would you agree with the description that Secretary Morin 

made, Mr. Khan, that they are getting there? 

Mr. KHAN. We would have to go back and evaluate that. 

Part of the issue is also related to what I mentioned earlier about 

data standardization. That was the problem, why SPS was not 

communicating properly with DEAMS. That is an issue. 

The other one goes to some of the features which the users of 

DEAMS had in the legacy systems are not in the newer system. 

So it is like Dr. Morin is saying, it is managing the expectations 

that in some of the cases workload is not going to lighten up for 

the users. But this is also linked up with the business process reengineering effort which is a part of the NDAA. If that is followed 

through, the expectation is that the processes are going to be much 

more streamlined than they were in the legacy environment. So 

ideally that is going to lighten the workload. 

Senator MCCASKILL. Finally, the auditability of Army classified 

programs. Earlier this year, the Army was asked to reprogram 

funds for a variant of the GFEBS that will be able to handle its 

classified programs. Without this new system, the Army said it 

would not be able to achieve full auditability of its SBR by the 2014 

deadline set by Secretary Panetta. The reprogramming request was 

recently withdrawn largely because it did not meet Senator 

McCain’s criteria for approval of a new start reprogramming request. 

I would like you to state for the record what the impact of a 

withdrawal of the GFEBS Sensitive Activities reprogramming request on the Army’s ability to meet the deadline is, and what steps, 

if any, would you like Congress to take in the 2013 authorization 

and appropriations legislation to address this issue? 

Mr. WESTPHAL. Madam Chair, as I understand it, if we are able 

to get the resources in fiscal year 2013, we will be able to fix this 

issue. We have asked for the reprogramming, and Senator McCain, 

as you pointed out, has asked us to put our report together on that 

and we are producing that. 

Senator MCCASKILL. Okay. If you would let us know and make 

sure that we get what you need in the authorization, as it relates 

to that, I think it is very important that the classified programs 

have that auditability, and I do not want to leave them behind. So 

let us know on that. 

As usual, you all are working very hard at a very difficult problem. I get very frustrated with the amount of money that has been 

spent and the amount of time it has taken. But please do not lose 

sight that I do understand that it is incredibly complicated what 

you are trying to do. There are no businesses that have the challenges that you have in terms of enterprise-wide auditability. 

114 

I am not going to let up on this because I think it is essential 

that we get to that point. I will be watching. I feel like ordering 

my buttered popcorn and Diet Coke to watch this 2014 date because I think this is going to be very interesting to see how this 

turns out. I do think everybody is on point about it. I think everybody is working very hard towards the goal. I will be paying very 

close attention to how much money it costs us to get to this 2014 

number. I will look forward to whatever assessment you think you 

can give us, Secretary Hale, about manual work-arounds and what 

the price tag on that is going to be so that I could have a conversation with both you and Secretary Panetta to make sure that we 

have done the cost-benefit analysis. 

I think pushing everybody has a lot of benefit. I just want to 

make sure the costs associated with that benefit are not too high. 

I would appreciate any feedback we can get specifically on that in 

the coming weeks and months. 

As usual, thank you very much for all of your service. The public 

has no idea how much you know and how hard you work. I do. 

Thank you very much. This hearing is adjourned. 

[Questions for the record with answers supplied follow:] 

QUESTIONS SUBMITTED BY SENATOR CLAIRE MCCASKILL

PROBLEMS WITH FUNDS BALANCE WITH TREASURY

1. Senator MCCASKILL. Secretary Hale, Ms. McGrath, Secretary Work, and Secretary Commons, the Department of Defense (DOD) identified the reconciliation of 

its Funds Balance with Treasury (FBWT) as the first and easiest step that it could 

take toward auditability. In November 2010, however, the DOD Inspector General 

(IG) issued a disclaimer of opinion on the Navy’s fiscal year 2010 FBWT. The Government Accountability Office (GAO) reviewed the audit findings and concluded that 

although DOD has spent over 4 years and $29 million to acquire an information 

technology tool to reconcile FBWT, this tool won’t be able to get the job done until 

DOD takes additional steps to fix internal controls. For example, GAO found that 

the Navy relies on data from the Defense Cash Accountability System (DCAS) to 

reconcile their FBWT to Treasury’s records, however, ‘‘DOD has not tested the application controls over DCAS since its implementation to determine if the system is 

processing data as intended’’. ‘‘A list of over 650 DCAS system change requests’’ 

needs to be addressed ‘‘in order to correct DCAS data reliability and security problems or process required system updates’’; and ‘‘over 200 of these system change requests are deficiencies that affect audit readiness and 20 require immediate action.’’ 

Have the problems identified by the DOD IG and GAO been addressed? 

Mr. HALE and Ms. MCGRATH. In its 2011 report on Navy and Marine Corps 

FBWT reconciliation, GAO noted that Defense Finance and Accounting Service 

(DFAS) has been developing a Business Activity Monitoring (BAM) tool. The tool is 

an essential component in successful and repeatable Department of the Navy FBWT 

reconciliation. This year, DFAS has loaded the Navy appropriation data for fiscal 

year 2010 through fiscal year 2012 and has completed monthly FBWT reconciliations for the first 4 months of fiscal year 2012. DFAS is also retaining all supporting documentation for audit purposes. Further strengthening of the BAM tool’s 

internal controls is planned for third quarter of fiscal year 2012, along with the 

loading of the Navy appropriations data from fiscal year 2006 to 2009. Other improvements are also planned. DFAS expects the BAM tool to fully support the Navy 

FBWT reconciliation by the scheduled audit readiness date of March 2013. 

These 650 System Change Requests (SCR) GAO noted related to DCAS are not 

solely system deficiencies related to cash accountability reporting, but a combination 

of audit-related weaknesses, user enhancements, and other changes to systems 

functionality requested by both technical and functional experts. DOD has developed 

a two-step improvement plan to address the system change requests. First, DOD is 

currently migrating the systems platform that DCAS operates in, moving it to a 

web-based, Common Access Card enabled environment. This migration will complete 

approximately 100 of the SCRs. Second, the DCAS governance board, comprised of 

executive level personnel, will review and reprioritize all remaining SCRs after the 

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systems migration. This board will be held accountable for ensuring that the scarce 

resources allotted to DCAS are used wisely with emphasis on ensuring auditability 

of the cash accountability reporting. 

Mr. WORK and Ms. COMMONS. The Navy does rely on the data from the DCAS 

to reconcile the FBWT to Treasury’s records. DCAS is managed and maintained by 

the Defense Logistics Agency (DLA). DLA is addressing the concerns noted by GAO, 

with plans to move DCAS to a more secure web environment, and with a planned 

November 2012 deployment of multiple systems change requests to enable NavyMarine Corps SBR audit readiness. 

In their 2011 report on Navy and Marine Corps FBWT reconciliation, GAO also 

noted that the DFAS has been developing a BAM tool. This information technology 

tool is essential to successful and repeatable Navy FBWT reconciliation. This year, 

DFAS has loaded Navy data for fiscal year 2010 through fiscal year 2012 appropriations and has completed monthly FBWT reconciliations for the first 4 months of fiscal year 2012. DFAS expects to be current with the monthly reconciliations from October 2011 going forward by the end of May 2012. For audit purposes, DFAS is also 

retaining all documentation supporting the monthly reconciliations. Further 

strengthening of the BAM tool’s internal controls is planned for third quarter of fiscal year 2012. DFAS expects the BAM tool to fully support the Navy FBWT reconciliation by the scheduled audit readiness date of March 2013. 

2. Senator MCCASKILL. Secretary Hale, Ms. McGrath, Secretary Work, and Secretary Commons, why is it that the DCAS problem does not appear to have adversely affected other DOD entities that submitted their FBWT for audit? 

Mr. HALE. The current 2014 directive for auditability will require all entities to 

reconcile FBWT, regardless of system in use. Only a few entities to include the Navy 

currently use DCAS for U.S. Treasury expenditure reporting and FBWT reconciliation. DOD is working closely with the U.S. Treasury in conjunction with the Government Wide Accounting reporting modernization effort to ensure all of our systems that affect the FBWT reconciliation are properly aligned and auditable. 

Ms. MCGRATH. The DCAS capabilities affect other entities and the solutions being 

implemented will improve the processes for all impacted entities. 

Mr. WORK and Ms. COMMONS. The Navy is the only DOD organization using 

DCAS for cash accountability and Treasury reporting. 

3. Senator MCCASKILL. Secretary Hale, Ms. McGrath, Secretary Work, and Secretary Commons, is the Navy now in a position to receive a clean audit opinion on 

its FBWT? 

Mr. HALE and Ms. MCGRATH. Navy has established a plan to assert audit readiness for FBWT by March 31, 2013. We are monitoring Navy’s progress against their 

plan. 

Mr. WORK and Ms. COMMONS. The Navy’s FBWT audit readiness assertion date 

is planned for March 31, 2013. The Navy is not yet audit ready. The Navy is collaborating with the DFAS to execute its detailed plan to achieve audit readiness in this 

area. The Navy has financial managers on-site at DFAS Cleveland working closely 

with DFAS managers to keep the detailed FBWT auditability plan on schedule. 

QUESTIONS SUBMITTED BY SENATOR JOSEPH MANCHIN III 

OVERSIGHT OF CONTRACTING

4. Senator MANCHIN. Secretary Hale, we must look closely at the business practices of contracting since contracted spending accounted for over half of the DOD 

budget in fiscal year 2011. In your response to my question regarding the ratio of 

contractors to uniformed personnel, and the jobs performed by contractors in overseas operations, you stated, ‘‘I don’t think any contractor is doing exactly the same 

job as a frontline soldier.’’ 

However, I maintain that contractors are performing many jobs that our 

servicemembers have been trained to do, and at a higher cost. From what I understand, contractors eat at the same dining facilities, see the same doctors, and are 

resupplied by the same convoys that support our troops. There are also long-term 

costs associated with contractors, especially in cases like Qarmat Ali where the taxpayers may foot the bill because of the indemnity clause that relieves the contractor 

of responsibilities even under willful misconduct conditions. 

As you may know, the Corps of Engineers contracts for security in both Afghanistan and Iraq. According to a 2011 Special Inspector General for Iraq ReconstrucVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00119 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
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1 Available at http://www.defense.gov/news/Defense—Strategic—Guidance.pdf 

2 Available at http://www.defense.gov/qdr/ 

3These security providers provide self defense against criminal violence, not deliberate destructive action against armed forces or armed actors. In many cases, using soldiers to protect 

non-military personnel or reconstruction activities could turn civilian development into a military target. 

tion report, in May 2004 the Army awarded a services contract to the Aegis Corporation for security management services, protective services, and antiterrorism 

support and analyses in Iraq. The contract was for a 1-year base period—June 1, 

2004 through May 31, 2005—and two 1-year options—June 1, 2005 through May 

31, 2007. The two 1-year options were exercised, and the second option year was 

extended for 6 months to November 30, 2007. As of April 7, 2011, obligations totaled 

$447.5 million, and Aegis had received $445.5 million. 

Similar jobs go well beyond security and frontline soldier missions. For example, 

according to a 2009 CBS report, Kellogg, Brown, and Root (KBR) was found to 

charge $100 per load of laundry. Yet, we have Quartermaster Corps soldiers trained 

to operate shower and laundry equipment. Further, the Laundry Advance System, 

which is a mobile laundry trailer, is capable of supporting large military units. 

With that in mind, below is a sampling of jobs being performed by contractors 

doing the same job as a military servicemember in Afghanistan. Please provide a 

comparison in salaries of the following positions: 

Contracted Position Military Position 

FLUOR Security Manager (Afghanistan)—U.S. Marine MOS 0311 

SABRE International Security Manager—U.S. Army 11B30 

Dyncorp Detainee Expert—U.S. Army 31E20 

Armor Group Security (Afghanistan)—Army 11B10/Marine 0311 

Aegis Security Escort Team Leader—Army 11B20/Marine 0311 

Aegis Personal Security Detail Leader—Army 11B20/Marine 0311 

Aegis Kennel Master—U.S. Army MOS 31K30 

Aegis EOD Dog Handler—U.S. Army MOS 31K10 

Triple Canopy Security Guard (Afghanistan)—U.S. Army 11B/Marine 

0311 

KBR Laundry Facility Attendant—U.S. Army MOS 57E10 

KBR Laundry Facility Supervisor—U.S. Army MOS 57E30 

KBR Food Service Specialist—U.S. Army MOS 92G10 

KBR Food Service Specialist Supervisor—U.S. Army MOS 92G 

Mr. HALE. The 2012 Defense Strategic Guidance 1 indicates DOD is maintaining 

a ready and capable force even as it reduces the size of the military. We are focused 

on sustaining the military’s warfighting capabilities. This strategy entails leveraging 

non-military personnel for the support activities associated with combat, including 

the types of support services listed in your question as well as reconstruction activity, which is non-military in nature. The use of contractors in these support activities has been a feature in every war or contingency operation in our history. As the 

2010 Quadrennial Defense Review (QDR)2 acknowledged, contractors are part of the 

total force, providing an adaptable mix of unique skill sets, local knowledge, and 

flexibility that a strictly military force cannot cultivate or resource for all scenarios. 

This is true even for contractor-provided security.3 More broadly, contractors provide a range of supplies, services, and critical logistics support in many capability 

areas, while reducing military footprint and increasing the availability and readiness of resources. 

We are in the process of assembling the requested data, but caution that a direct 

comparison between the contracted cost for an individual and the salary of a military position poses challenges. For example, a soldier’s annual salary does not reflect the life-cycle costs to recruit, train, retain, and retire the individual; and a contractor’s annual salary does not capture the fact that this work-for-hire resource 

comes pre-recruited and pre-trained and can be flexibly engaged and released. In 

2009, the Chairman of the Joint Chiefs of Staff commissioned a task force to assess 

DOD’s reliance on contracted support in contingency operations and provide recommendations to improve our ability to plan for and execute operational contract 

support. As a result, the Chairman, with great support from the Secretary of Defense, has directed a number of efforts to institutionalize this capability. These ongoing efforts include, but are not limited to, improvement to strategic planning guidance, doctrine, education, and resources. GAO is currently evaluating DOD’s efforts 

in this area under job number 351692. 

DOD agrees that it must continuously look closely at the business practices of 

contracting, particularly in support of frontline soldiers. We have been working with 

Senator McCaskill, who chairs this subcommittee, and others on improving wartime 

117 

contracting efforts. In recent years, we supported the 2008 to 2011 Wartime Commission that Senators McCaskill and Webb established, providing the Commission 

with personnel, data, interviews, and insights. The Commission issued three major 

reports containing many recommendations. We maintain a scorecard to manage 

DOD progress against all the Commission’s recommendations. We currently are 

working with GAO, which is engaged under job number 121042 in evaluating DOD’s 

progress against the Commission’s recommendations. We are also working with Senator McCaskill’s Senate Homeland Security and Governmental Affairs Committee 

Contracting Oversight Subcommittee staff on the language of her proposed Comprehensive Contingency Contracting Reform Act of 2012 (S. 2139). The provisions 

are far-reaching and include coverage related to topics raised in your question: contracting for security and base operations support services, which are obtained 

through omnibus contracts, like the Logistics Civil Augmentation Program. 

5. Senator MANCHIN. Secretary Hale, as a follow-up to your testimony regarding 

the mix of contractors to military personnel, according to the public website for the 

Defense Contract Audit Agency (DCAA), the agency that provides standardized contract audit services for DOD, as well as accounting and financial advisory services 

regarding contracts and subcontracts, there resides an inherent skillset within DOD 

for oversight of contracts. There are 4,172 auditors within DOD, and a total staff 

of nearly 5,000 in DCAA. Nearly all of these employees have college degrees (4,399), 

advanced degrees (1,424), or are Certified Public Accountants (1,216). Beyond the 

organic audit functions performed within DOD, could you further provide the number and type of contractors that DOD intends to employ to perform an audit? 

Mr. HALE. While contract audits are an inherently governmental function, financial statement auditing is not. Financial statement audits are different than contract audits, and require a different skillset. Our estimate of the number and type 

of contractors that DOD intends to employ to perform financial statement audits is 

contract sensitive. However, significant financial statement audits that have been 

performed, such as the U.S. Army Corps of Engineers and the U.S. Marine Corps 

audits, have involved approximately 100 auditors. 

6. Senator MANCHIN. Secretary Hale, how long do you anticipate hiring these contractors to perform audit functions? 

Mr. HALE. Since financial statement audits are not an inherently governmental 

function and they require specialized skills and experience, we believe it is most efficient and effective to use contractors to perform this function indefinitely. It should 

be noted that this is a common practice across government, and that independent 

public accountants’ work is frequently subject to review by government auditors 

such as the DOD IG and GAO. 

7. Senator MANCHIN. Secretary Hale, in your testimony you stated, ‘‘our contractor dollars from 2012 to 2013 go down in similar levels to our civilian workforce 

and our military workforce. So, you are seeing some downturn in contractors.’’ Can 

you provide me the details behind your statement, to include the details on the 

number of contractors in 2012 and 2013? 

Mr. HALE. As reflected in the fiscal year 2013 President’s budget request, overall 

contract services funding decreases by $3.9 billion (3 percent) from fiscal year 2012 

level of $136 billion to the fiscal year 2013 level of $132 billion. The primary reason 

for this decrease in contractor support ($2.4 billion) is the reduction in staff support 

contract services, one of our targeted fiscal year 2012 efficiencies. Advisory and Assistance and Other Services decrease by 10.2 percent from the fiscal year 2012 

budget, largely attributable to reductions in support to the Army, the Defense Intelligence Agency and other classified programs. These are the object classes that 

would contain the majority of staff-support contractor functions; however, some of 

the specific staff-support contracts may be reflected against other object classes. A 

process to measure actual progress against the Secretary’s reduction goal has been 

implemented. Although overall contract services funding is estimated to decrease by 

3 percent in fiscal year 2013, the fiscal year 2013 contractor full-time equivalent 

(FTE) levels are estimated to increase by 6 percent from 290,133 to 308,532—with 

the largest increases in the less costly skill set of equipment maintenance. 

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QUESTIONS SUBMITTED BY SENATOR KELLY AYOTTE

SEQUESTRATION

8. Senator AYOTTE. Secretary Westphal, Secretary Matiella, Secretary Work, Secretary Commons, Secretary Morin, and Mr. Tillotson, as the Chief Management Officers (CMO) and Chief Financial Officers, each of you enjoys unique visibility across 

the breadth of your respective Services’ financial and management operations. 

Under current law, the defense sequestration cuts are due to be implemented in 

January. Including the existing $487 billion in cuts over the next 9 years, defense 

sequestration would result in an approximately $1 trillion reduction in defense 

spending over the next decade. Secretary Panetta has said the defense sequestration 

cuts would be catastrophic and would inflict severe damage to our national defense 

for generations. He compared the defense sequestration cuts to shooting ourselves 

in the head. From a budget and management perspective, what impact will defense 

sequestration have on your Service? 

Mr. WESTPHAL and Ms. MATIELLA. To echo Secretary Panetta, the magnitude of 

these cuts would be catastrophic. Sequestration would force an immediate percentage reduction in our operation and maintenance accounts that could damage readiness, for example through reduced training, and make our ability to cover any emergent execution year requirements extremely difficult. The reductions could also affect ongoing efforts to improve our infrastructure and could desynchronize our investment and modernization strategies. 

While recognizing the Nation’s deficit challenges, it is imperative that any future 

reductions as a result of reduced discretionary spending caps to the Army’s budget 

be based on comprehensive strategic analysis. We must ensure that we preclude 

hollowing the Army by maintaining balance in force structure, readiness, modernization efforts, and commitments to the All-Volunteer Force. 

Mr. WORK and Ms. COMMONS. Any planning for sequestration would be a government-wide effort guided by the Office of Management and Budget (OMB). If sequestration occurs, automatic percentage cuts are required to be applied without regard 

to strategy, importance, or priorities, resulting in adverse impact to almost every 

contract and operation within DOD. Sequestration would adversely impact all components of the fiscal year 2013 budget request through contract cancellations, contract terminations, undetermined cost increases caused by inefficient contracting, 

and schedule delays. 

Dr. MORIN and Mr. TILLOTSON. Per guidance from OMB, DOD is not planning for 

sequestration; however, sequestration would drive major additional reductions beyond the first phase of the Budget Control Act (BCA) reductions to the Air Force 

fiscal year 2013 budget request. We concur with Secretary Panetta’s assessment. As 

Air Force leadership has testified, the proposed fiscal year 2013 budget is a balanced and complete package with no margin of error. Under sequestration, additional programs would need to be restructured, reduced and/or terminated. Our 

readiness and operations would be impacted, as well as all investment accounts, including our high-priority modernization efforts. 

YEAR-END FUNDS TRANSFERS

9. Senator AYOTTE. Secretary Hale, as I said in my opening statement, I am concerned that the annual transfer of funds between defense accounts, especially at the 

end of the fiscal year, decreases accountability and increases the difficulty in achieving accurate financial statements. These requests are supposed to be for higher priority items based on unforeseen military requirements. How do you ensure that 

funds-transfers, including those that are below the threshold needed for congressional approval, are, in fact, being spent on higher-priority items based on unforeseen military requirements? 

Mr. HALE. I believe that the current reprogramming process provides DOD with 

necessary flexibility while providing Congress with appropriate oversight. DOD prepares the budget 18 to 20 months prior to actual execution, the reprogramming 

process permits DOD to meet most emerging requirements in a timely manner 

while staying under the Transfer Authority limits. I have personally conveyed your 

concerns and those of other committees to my staff and to the senior staff in the 

military departments. 

10. Senator AYOTTE. Secretary Hale, do you agree that the persistent transfer of 

funds among accounts without oversight, particularly at the end of the fiscal year, 

makes the prospect of an accurate financial statement that much more difficult to 

119 

obtain? If so, what are you doing to curtail these transfers and end-of-year spending 

sprees? 

Mr. HALE. I believe that the current reprogramming process provides DOD with 

necessary flexibility while providing Congress with appropriate oversight. The reprogramming process provides critical support enabling DOD to respond to emerging needs and to make effective use of taypayers’ dollars. The process is especially 

important when we are at war. I have personally conveyed your concerns and those 

of other committees to my staff and to the senior staff in the military departments. 

We will seek to minimize reprogrammings, but we need your help to create a process that continues to meet warfighters’ needs. 

BASE OPERATING BUDGETS

11. Senator AYOTTE. Secretary Hale, the Services historically propose annual 

budgets that contain an amount for base operating support that is significantly less 

than the known requirements. They know that they will have the flexibility to 

transfer funds into the account to cover bills during the year. But this practice results in a budget that does not reflect reality. How can we change this process to 

ensure the budget proposals reviewed by Congress are an accurate accounting of 

what we expect to pay? 

Mr. HALE. A number of factors have challenged the Services’ efforts in recent 

years to predict and budget for Base Operations Support (BOS) costs. Utilities costs 

across all commodities (i.e., electricity, fuel oil, natural gas, and coal) are rising at 

a faster rate than previously experienced. Soldier and family support programs related to transition assistance, suicide prevention, and sexual harassment and assault have expanded to meet the evolving needs of our warfighters and their families. The fidelity of the Services’ BOS budget proposals will improve over time as 

cost estimating models are updated to reflect recent trends in utilities costs and the 

impact that the redeployment of personnel from Afghanistan will have on BOS programs and costs has been fully assessed. 

12. Senator AYOTTE. Secretary Hale, if we have predictability regarding certain 

budget expenses, why are these accounts not completely funded in DOD’s budget requests? 

Mr. HALE. The Services can accurately predict the costs of certain BOS programs. 

These include traditional family programs such as child care and youth programs, 

law enforcement and force protection, fire protection, leases, long-term utilities privatization contracts, and civilian salaries. These fixed costs represent more than 80 

percent of the total BOS requirements and are fully funded each year. As mentioned 

in the response to Question #11, there have been unfunded requirements in recent 

years due in part to the growth in specialized soldier and family support programs 

and utilities bills that are not tied to fixed rates. 

MAJOR WEAPONS SYSTEMS COSTS

13. Senator AYOTTE. Secretary Hale, after the defense budget cuts of the early 

1990s, we saw significant growth in the unit costs of major systems as their procurement quantities were reduced and their acquisition schedules were stretched 

out. We are now facing a similar scenario where—through sequestration—the BCA 

will significantly cut the defense budget. Has DOD looked at how the drawdown 

during the 1990s impacted the costs of major weapons systems? 

Mr. HALE. If sequestration takes effect early next year, significant inefficiencies 

and impediments to prudent acquisition program management and financing will be 

introduced. The requirement that each program, project, and activity take a reduction will introduce serious management challenges for program managers. DOD 

does not have the data on the cost impact of the previous drawdown. 

14. Senator AYOTTE. Secretary Hale, is DOD doing any similar analysis today as 

it plans its budgets for the out-years? If not, why not? 

Mr. HALE. DOD prepares the annual budget request within the framework of the 

Planning, Programming, Budgeting, and Execution system process. The Secretary of 

Defense has noted that additional reductions in resources will require a revised 

strategy and will prepare a budget that includes the out-years. 

15. Senator AYOTTE. Secretary Hale, to what extent could cost savings from these 

reductions be eaten up over the long-term by higher per-unit costs and termination 

costs? 

120 

Mr. HALE. Procuring defense articles at economic rates often yields savings, in 

comparison to procurement actions where vendors are unable to take advantage of 

economies of scale production. Likewise, terminating or cancelling procurement in 

advance of what was contracted, typically results in additional costs to the government, to prematurely closeout production. DOD customarily seeks to maximize its 

spending by buying at economic rates. However, when the funding is constrained 

and the resources are allocated over a wide portfolio of defense missions, maintaining efficient rates and keeping production lines open become challenging. 

Once DOD has been notified by OMB as to the annual budget level, DOD will 

carefully examine investment strategies and alternatives to address the full spectrum of national security requirements by crafting a balanced budget plan to minimize inefficiencies as a result of lower funding levels. 

BUDGET EFFICIENCIES

16. Senator AYOTTE. Secretary Hale, in January 2011, DOD announced that it 

had found $154 billion in efficiencies over the next 5 years and that it would be able 

to invest $70 billion of that saved money into more deserving accounts. Those efficiencies included scores of initiatives, including program cancellations and restructuring, consolidations in various facilities and functional areas, reductions to DOD’s 

workforce, and cuts to the number of flag and general officers and senior executive 

personnel. Where in its overall plan of action and milestones is DOD in implementing these efficiency initiatives? 

Mr. HALE. DOD has established governance processes and reporting mechanisms 

to manage implementation of the 300+ efficiency initiatives. The Services and the 

Office of the Secretary of Defense (OSD) are on target to successfully implement 

their President’s budget for 2012 efficiencies. On April 23, 2012, the Services briefed 

the Senate Appropriations Committee and Senate Armed Services Committee staffs 

on their fiscal year 2012 Secretary of Defense efficiency initiatives, explaining the 

key focus areas in which they intended to gain efficiencies, the implementation process, and assessment of risk. 

Due to enactment of the BCA of 2011, many of the reinvestments included in the 

fiscal year 2012 President’s budget request have been offset by major force structure 

changes and other reductions in the fiscal year 2013 budget. 

17. Senator AYOTTE. Secretary Hale, to what extent is DOD actually realizing the 

intended savings? 

Mr. HALE. Senior leadership within DOD routinely monitor execution of these efficiencies to ensure that intended savings are realized. As of the March 19, 2012, 

briefing to the Deputy Secretary of Defense, the Services and OSD are on target to 

successfully implement their President’s budget for 2012 efficiencies. In addition, 

the Services briefed the Senate Appropriations Committee and the Senate Armed 

Services Committee staffs on April 23, 2012, assuring the staffs that they are on 

track to meet their fiscal year 2012 efficiency targets. 

18. Senator AYOTTE. Secretary Hale, without the ability to audit DOD’s Statement 

of Budgetary Resources (SBR), how do we actually know we are saving this money? 

Mr. HALE. Although the overall DOD SBR is not yet auditable, each component 

annually certifies its own financial reports. These individual, component-level accounting systems provide the execution information utilized in each component’s efficiency governance and reporting process. In March 2012, all the Services and OSD 

reported on track execution of their efficiencies. 

19. Senator AYOTTE. Mr. Khan, do you have any concerns that the quality of 

DOD’s financial management data, business processes, and business systems may 

not be conducive to fully achieving these intended savings? 

Mr. KHAN. As we have reported, DOD does not yet have accurate and reliable financial data needed to effectively carry out its management functions, including 

identifying and managing the costs of its operations, and reliably estimating resource needs. We have also reported that weaknesses in DOD’s business processes 

and systems contribute to the lack of reliable financial data. In estimating reported 

cost savings, we would expect that DOD would have to rely to some extent on historical financial management data as well as program performance information to 

identify areas where potential efficiencies and related cost savings could be 

achieved. To track its progress in achieving these savings, we would expect that 

DOD would need to rely on information in its accounting systems as well. Therefore, 

until DOD corrects the weaknesses in its accounting and other business processes 

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and systems so that it is able to produce reliable financial data for its cost savings 

efforts, any reported cost savings will not be reliable. 

20. Senator AYOTTE. Secretary Hale, of the $100 billion in savings, the plan was to let the Services use about $28 billion to cope with higher-than-expected operating 

expenses and $70 billion for high-priority weapons systems. To what extent have 

these monies been reinvested as intended? 

Mr. HALE. Due to enactment of the BCA of 2011, many of the reinvestments included in the fiscal year 2012 President’s budget request have been offset by major 

force structure changes and other reductions in the fiscal year 2013 budget. 

CONTRACTOR PENSION LIABILITIES

21. Senator AYOTTE. Secretary Hale, a few months ago, Senator McCaskill and 

I, and subsequently Chairman Levin and Ranking Member McCain, asked GAO to 

look into the issue of defense contractor unfunded pension liability. Due to a change 

in Federal accounting rules that would accelerate the amount contractors can recover from DOD for their employee pension costs, DOD may have to pay billions 

of dollars more for weapons programs than originally planned. To what extent has 

DOD budgeted for these pension liabilities? 

Mr. HALE. DOD did not budget for the increased pension costs resulting from the 

rule revision in the fiscal year 2013 President’s budget submission. 

22. Senator AYOTTE. Secretary Hale, what will DOD’s approach be going forward 

to properly budget for these liabilities? 

Mr. HALE. The Director, Defense Pricing has issued guidance stating that all contracts entered into after February 27, 2012, should properly reflect contractor pension costs calculated under the newly revised Cost Accounting Standards. We will 

continue to work with the Office of Defense Pricing to ensure that these costs are 

properly captured in future budget submissions. 

23. Senator AYOTTE. Secretary Hale, how concerned are you about this issue 

today? 

Mr. HALE. We are concerned that the recent change to the Cost Accounting Standards will result in higher pension costs to DOD in the near-term. It is unfortunate 

that these higher costs are coming at a time when DOD is working hard to identify 

ways to efficiently reduce spending. However, we recognize that this will not likely 

be a permanent cost increase to DOD. As contractors’ pensions become fully funded, 

DOD’s reimbursement costs should revert to historically normal levels. 

24. Senator AYOTTE. Secretary Hale, according to the 10–K Securities and Exchange Commission reports that the four top defense contractors recently filed, the 

difference between their pension plan assets and future pension liabilities range 

from $2.9 billion to $13.5 billion each. At this point, what is your sense of roughly 

how much these liabilities could cost DOD? 

Mr. HALE. These costs will be spread over all entities that do business with these 

companies. The amount that those liabilities could cost DOD depends on the amount 

of work DOD does with those contractors relative to other agencies and customers. 

Even under the old Federal accounting rules, DOD would have had to pay its share 

of those liabilities. The real cost to DOD from the new rules is the timing of cost— 

those liabilities will be recuperated much faster under the new rules, resulting in 

a cost increase in the near-term. DOD is currently working closely with our contractors to estimate DOD’s cost for our next budget submission. 

AIR FORCE AUDITABILITY

25. Senator AYOTTE. Secretary Morin, Mr. Tillotson, and Mr. Khan, I understand 

that, among all the Services, the Air Force may have the most difficulty meeting 

Secretary Panetta’s accelerated goal of 2014, as opposed to 2017, to achieve 

auditability of its SBR. What are the most significant challenges facing the Air 

Force in this regard and how is the Air Force addressing them? 

Dr. MORIN and Mr. TILLOTSON. The most significant challenge facing the Air 

Force is the lack of a single integrated financial management system. Financial data 

flows through multiple systems before it is posted to our general ledger. This creates 

opportunities for data to be lost or otherwise degraded. To address this problem, the 

Air Force began implementing an Oracle-based COTS package widely used in the 

Federal Government. The resulting system, Defense Enterprise Accounting and 

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Management System (DEAMS), is a joint effort with U.S. Transportation Command 

(TRANSCOM), DFAS, and the U.S. Air Force. DEAMS will not be fully deployed 

prior to the 2014 date. To address this shortfall, the Air Force and DFAS are evaluating additional process controls and cost-effective enhancements to legacy systems 

to achieve the accelerated goal. The ability to meet the 2014 goal will also require 

increased manpower to support additional anticipated testing of data and controls. 

Mr. KHAN. As part of the May 2012 Financial Improvement and Audit Readiness 

(FIAR) Plan Status Report, the Air Force reports accelerating audit readiness milestones for each of its SBR assessable units and its planned strategy for meeting 

those milestones. However, the Air Force may face challenges similar to those for 

the Marine Corps’ initial SBR audit experience that it must overcome if it is to meet 

the 2014 audit readiness date for its SBR. These challenges include the ability to 

produce supporting documentation for individual transactions; reconciling data between different systems such as military pay and personnel systems; ensuring that 

it can identify complete populations of transactions for activities such as civilian 

pay; and ensuring that its personnel are adequately trained to carry out key internal controls and other activities necessary for an audit. According to the Air Force, 

it will require additional contractor and auditing expertise to meet these accelerated 

milestones. 

Another challenge involves the lack of effective automated information systems 

such as Enterprise Resource Planning (ERP) systems. In the May 2012 FIAR Plan 

Status Report, the Air Force reported that it will need to rely on manual controls 

and legacy system enhancements to meet the SBR audit readiness goal. Reliance 

on manual controls and legacy systems to produce financial management information for reporting results will necessitate more time-consuming, extensive testing, 

the collection of more supporting documentation, and the reconciliation of data 

maintained in the numerous legacy systems, not only in Air Force systems, but also 

in those under the control of the DFAS. 

26. Senator AYOTTE. Secretary Morin, Mr. Tillotson, and Mr. Khan, how confident 

are you that the Air Force will make the 2014 goal in a way that is repeatable and 

that will, in fact, ensure that the Air Force has the reliable data and efficient business processes it needs to support major financial management decisionmaking? 

Dr. MORIN and Mr. TILLOTSON. We are confident that the Air Force is making the 

necessary changes to improve business processes and enhance data reliability to 

support major financial management decisionmaking. We have implemented additional reconciliations and controls in our funds distribution and reimbursable authority business processes, clarified guidance related to asset accountability, and are 

deploying an automated time and attendance system for our civilian employees. We 

have a disciplined review process and anticipate identifying and implementing additional corrective actions required to meet the 2014 date. We continue to assess that 

there is moderate risk involved in meeting the deadline, primarily due to systems 

deficiencies that we are working to remedy. 

Mr. KHAN. It is unclear at this time whether the Air Force can meet the 2014 

audit readiness goal of enabling an effective and efficient audit and timely audit 

opinion. The recent experiences of the Marine Corps in its efforts to have its SBR 

audited demonstrate the kinds of difficulties that the Air Force might also encounter, such as the inability to provide supporting documentation for its transactions 

and beginning balances. Given the significant change in the deadline for the Air 

Force and the relatively short time to develop and implement new plans to meet 

the new goal of 2014 along with its existing systems’ limitations, it is likely that 

the Air Force will rely on labor-intensive, error-prone manual workarounds and 

other extraordinary efforts if it is to achieve the 2014 goal. Such extraordinary, stopgap measures are unlikely to address the root causes of the Air Force’s financial 

data deficiencies, thereby increasing the risk of not being able to repeat any success 

achieved in 2014. 

AUDITABILITY OF ARMY PAY RECORDS

27. Senator AYOTTE. Secretary Westphal and Secretary Matiella, a few weeks ago, 

GAO issued a report that indicated that the Army faces significant challenges in 

achieving audit readiness for its military pay area of business. Basically, GAO found 

that, with its existing procedures and systems, the Army could not effectively identify populations of military pay records and compare military pay accounts to personnel records. According to GAO, the Army also did not have an efficient or effective process or system for providing supporting documents for Army military payroll. Identifying populations of transactions and reliably generating supporting docuVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00126 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
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mentation are essential to achieving audit readiness. But, as GAO concluded, without effective processes related to military pay, the Army will have difficulty meeting 

DOD’s 2014 audit readiness goal for the SBR. What military pay audit readiness 

efforts is the Army pursuing that, if successfully implemented, could help increase 

the likelihood of meeting DOD’s 2014 SBR audit readiness goal and the 2017 mandate for audit-readiness on a complete set of DOD financial statements? 

Mr. WESTPHAL and Ms. MATIELLA. The Army is working with the DFAS to develop and document an effective and repeatable process for identifying the population of Active Duty military payroll accounts each fiscal year. In fact, the Army 

and DFAS implemented a new process in October 2011 that includes a monthly reconciliation of all detailed military personnel pay statements to the summary financial reporting records. This process improvement represents a significant accomplishment that advances the Army’s military personnel pay audit readiness. 

In addition, we are documenting the military personnel and payroll business processes, identifying the key pay-related substantiating documents and procedures for 

maintaining these documents. As part of this effort, the Army and DFAS have created a matrix that outlines the relevant substantiating documents and points of retention of those documents for each payroll entitlement. We are also documenting 

business processes and internal control activities associated with each detailed military payroll transaction. The business process maps and document retention criteria, which were not available during the GAO audit, will inform the financial 

statement auditors of how payroll entitlements are processed and how to obtain supporting documentation. 

Finally, we are reviewing all policies governing the storage and retention of key 

personnel and payroll-related documents. Specifically, we are revising Army Regulation 600–8–104, Military Personnel Information Management/Record, to require key 

personnel and pay-related documents supporting military payroll transactions be 

centrally located and retained in the servicemember’s Official Military Personnel 

File. These revisions will require human resource managers to periodically review 

and confirm that Official Military Personnel File records in master personnel record 

systems are consistent and complete to support financial statement audit requirements. The review will ensure policies, processes, and supporting business systems 

enable timely access to substantiating documentation in a cost-effective manner. 

These accomplishments and ongoing efforts will enable auditable Army military 

pay business processes in support of the 2014 SBR audit readiness deadline and the 

2017 financial statement deadlines. 

28. Senator AYOTTE. Secretary Westphal and Secretary Matiella, to what extent 

are these efforts documented sufficiently to help ensure that they will be implemented in a timely and effective manner? 

Mr. WESTPHAL and Ms. MATIELLA. These efforts are extensively documented. The 

Army follows the OSD–C FIAR Guidance, which requires a detailed financial improvement plan. OSD–C reviews the Army’s financial improvement plan each month 

for compliance with the FIAR Guidance. 

NAVY’S AND MARINE CORPS’ FUND BALANCE WITH TREASURY

29. Senator AYOTTE. Secretary Work and Secretary Commons, in the Federal Government, an agency’s FBWT account is like a corporate bank account. But instead 

of a cash balance, the FBWT represents unexpended spending authority in appropriations. So, the FBWT account basically reflects how much budget spending authority is available to DOD and is, for this reason, important to funds control. Because in this regard the FBWT supports the SBR, it must be ready for audit by the 

end of 2014 for the SBR to be auditable in compliance with the Secretary of Defense’s October 2011 direction. I understand DOD’s components have to reconcile 

their FBWT records periodically, to provide an adequate audit trail and resolve any 

differences. Reconciliation is vital for maintaining the accuracy and reliability of the 

component’s FBWT records. But, late last year, GAO found numerous deficiencies 

in the FBWT processes at the Navy and the Marine Corps that impair their ability 

to perform these FBWT reconciliations. In what ways are the Navy’s and Marine 

Corps’ existing FBWT policies and procedures inadequate? 

Mr. WORK and Ms. COMMONS. The December 2011 GAO report on Navy-Marine 

Corps FBWT reconciliation processes reported deficiencies with which the Navy concurred. Since GAO conducted its assessment, Marine Corps successfully demonstrated its FBWT reconciliation process to the public accounting firm auditing the 

Marine Corp’s SBR. There were no findings or recommendations made. Reconciliations are performed on a monthly basis; in addition, Marine Corps and DFASVerDate Aug 31 2005 13:32 Dec 18, 2012 Jkt 000000 PO 00000 Frm 00127 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\77485.TXT JUNE PsN: JUNEB
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Cleveland have documented the process with written procedures to address and improve weaknesses in demonstrating comprehensive and repeatable FBWT reconciliations. 

For the Navy, progress has also been made to address similar weaknesses noted 

in the GAO report. DFAS has further developed its BAM tool, which is essential 

to successful and repeatable Navy FBWT reconciliation. This year, DFAS has loaded 

the Navy data for fiscal year 2010 through fiscal year 2012 appropriations and has 

completed monthly FBWT reconciliations for the first 4 months of fiscal year 2012. 

DFAS expects to be current with monthly reconciliations at the end of May 2012. 

DFAS is also retaining all documentation supporting the monthly reconciliations. 

Further strengthening of the BAM tool’s internal controls is planned by third quarter of fiscal year 2012, and DFAS expects the tool to fully support FBWT reconciliation by the scheduled audit readiness date of March 2013. These milestones are 

identified in joint DFAS-Navy detailed plans of actions and milestones. 

The major challenge remaining in the Navy’s FBWT reconciliation process is the 

timely resolution of reconciling items—disbursements or collections which do not 

precisely match obligations in the Navy’s accounting systems. Root causes of reconciling items are being identified and corrected. 

30. Senator AYOTTE. Secretary Work and Secretary Commons, to what extent do 

these deficiencies present a risk that your Services’ SBRs will not be audit-ready 

by the 2014 deadline? 

Mr. WORK and Ms. COMMONS. An effective and repeatable FBWT reconciliation 

process is an essential capability for SBR audit readiness. The Navy currently 

projects that this process will be auditable by the second quarter of fiscal year 2013. 

Complete SBR auditability is scheduled for fourth quarter of fiscal year 2013. 

31. Senator AYOTTE. Secretary Work and Secretary Commons, how adequately do 

the Navy’s and the Marine Corps’ current plan of action and milestones address 

these weaknesses in their ability to achieve audit-readiness? 

Mr. WORK and Ms. COMMONS. The Navy has developed a comprehensive, integrated Plan of Action and Milestones (POAM) governing audit readiness efforts for 

the Navy’s SBR. Each POAM action item is assigned to a Navy manager or to a 

manager from the Navy’s collaborative partners and service providers. Each organization assigned actions participated in the development of the POAM, which is updated on a recurring basis by the Navy and its partners. The Navy tracks audit 

readiness progress, as indicated by the Navy SBR POAM, on a continual basis. Senior leaders responsible for audit readiness meet monthly for a progress update. Accomplishments are noted, and emerging risks to success are also discussed, along 

with any mitigating actions which are required. 

Accountability has been distributed to those organizations and managers responsible for making the changes necessary to achieve audit readiness. Flag officers have 

been assigned by the Vice Chief of Naval Operations to lead the auditability efforts 

in different segments comprising the Navy’s SBR. In addition, all Navy senior executives have an audit readiness objective in their annual performance plans. These 

senior leaders are setting the ‘‘tone-from-the-top;’’ they are driving the need for 

change in Navy business processes and systems which will enable audit readiness. 

GENERAL FUND ENTERPRISE BUSINESS SYSTEM

32. Senator AYOTTE. Secretary Westphal and Secretary Matiella, please provide 

an assessment of the General Fund Enterprise Business System (GFEBS). 

Mr. WESTPHAL and Ms. MATIELLA. The GFEBS is already the Army’s primary financial accounting and management system, and the cornerstone for producing unqualified financial statements for the Army general fund. GFEBS enables the Army 

to comply with numerous statutory and regulatory requirements, which include: 

• 94.7 percent compliance (or 1,054 of 1,113 requirements) from the Federal 

Financial Management Improvement Act (FFMIA) with full compliance 

later this fiscal year 2012. Source: U.S. Army Audit Agency. 

• 98 percent compliance with DOD’s Business Enterprise Architecture. 

• 92 percent compliance (212 of 232 applicable requirements) with DOD’s 

Standard Financial Information Structure (SFIS) with full compliance 

planned by the end of fiscal year 2012. 

• 100 percent compliance with DOD’s 250 real property accountability and 

inventory requirements. 

Following extensive operational testing, the OSD Milestone Decision Authority 

granted GFEBS a Full Deployment Decision in June 2011. GFEBS is operational 

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today with over 45,000 users at 20 commands and over 200 locations worldwide. 

GFEBS will add about 8,000 more users in July to complete the Army-wide implementation at 71 countries around the globe. 

In the 3 years since initial operations, GFEBS grew from 1 million transactions 

in fiscal year 2009 to an estimated 60 million transactions in fiscal year 2012 and 

from $1.2 billion in obligations to over $100 billion executed in fiscal year 2012. 

33. Senator AYOTTE. Secretary Westphal and Secretary Matiella, how is GFEBS 

helping the Army achieve its financial management goals? 

Mr. WESTPHAL and Ms. MATIELLA. GFEBS is critical to the Army’s financial management goals, which include producing unqualified financial statements and providing cost accounting capability for more effective use of resources. 

GFEBS is providing the Army with: 

• A financial accounting system that complies with statutory and regularity 

requirements for funds control, accounting, and auditing, to include real 

property and other asset data for depreciation; and provides visibility of the 

transactional and budget execution data in real or near real time. GFEBS 

provides the foundation for the Army to receive an unqualified audit opinion on its annual general fund financial statements. 

• A cost accounting system that provides full cost by allocating overhead 

and other indirect costs to outcomes, outputs, and services; and connects 

operational performance data to the cost data. GFEBS enables the Army to 

conduct more cost-benefit and other types of cost analyses as well as transition to a cost culture. 

• A management and decision support system that records financial and 

various other transactions in a single system, provides visibility of the 

transactional data in real time or near real time and provides trend, comparative, and other analytic data. GFEBS will enable more thorough, factbased analyses for both current-year operational performance and future 

programs and budgeting decisionmaking. 

Consistent with OSD and Army goals to strengthen financial management, 

GFEBS enables the Army to: 

• Reduce costs, by subsuming the capabilities of over 100 systems. • Standardize processes across all Army organizations. • Achieve compliance with numerous requirements, including FFMIA, 

SFIS, and the Bureau of Economic Analysis. 

• Implement a transaction-driven general ledger as well as tighter system 

controls in accordance with Federal Information Systems Control Audit 

Manual (FISCAM) requirements. 

With GFEBS, the Army is poised to support both a SBR audit assertion in fiscal 

year 2014, as directed by the Secretary of Defense; and fully auditable financial 

statements, as required by Congress by 2017. 

34. Senator AYOTTE. Secretary Westphal and Secretary Matiella, what is the experience from the field in using the system? 

Mr. WESTPHAL and Ms. MATIELLA. The magnitude of change associated with 

GFEBS is unprecedented in the Army business community. Not only is GFEBS a 

major technology change, replacing 40-year-old financial systems, but with the 

GFEBS deployment the Army is dramatically changing business processes, user 

roles and functions, implementing a new financial language (based on SFIS), and 

enforcing system and processes controls that were not mandated in our previous 

systems. 

The Army has embraced GFEBS and understands the value GFEBS provides in 

achieving Army and DOD objectives. Before every GFEBS go-live, each organization 

asserts its readiness for deployment and at each of the 10 go-lives we have received 

universal concurrence from all organizations in the Army and DFAS. 

While there is a significant learning curve that must still be overcome by those 

organizations that have recently gone live, those who have been using the system 

are pleased with its capabilities. They experience better data visibility, faster yearend close processes, more streamlined reimbursable processes, and much greater 

cost management capabilities. Not a single GFEBS user or organization that has 

been using the system for more than a few months has ever asked to go back to 

their legacy systems. 

35. Senator AYOTTE. Secretary Westphal and Secretary Matiella, I understand 

that you received a qualified audit opinion on a portion of the program. Can you 

explain what that means and its impact? 

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Mr. WESTPHAL and Ms. MATIELLA. In November 2011 an independent public accounting (IPA) firm issued a qualified opinion on five business processes associated 

with the SBR at the first three installations to deploy GFEBS (Forts Benning, Jackson, and Stewart). A qualified audit opinion indicates that the information presented was fairly presented with certain exceptions. A key area cited by the auditors 

was the lack of supporting documentation to support the samples. 

The Army developed corrective actions to address all of these findings in the report. This first exam and the subsequent exams scheduled for fiscal year 2012 and 

fiscal year 2013 bring the Army incrementally closer to meeting the fiscal year 2014 

SBR deadline and the fiscal year 2017 overall audit readiness deadline. 

The good news is in examining approximately 2,500 supporting documents, the 

auditor found consistency of standardized business processes across all three sites, 

which significantly enables the Army’s audit readiness efforts. 

36. Senator AYOTTE. Secretary Westphal and Secretary Matiella, is the GFEBS 

progressing according to the Army’s expectations? 

Mr. WESTPHAL and Ms. MATIELLA. The progress of GFEBS development and deployment is meeting the Army’s expectations. In December 2011, development of the 

system completed on schedule. In April 2012, 42 months after the initial pilot with 

one organization and 250 end-users, GFEBS had 45,000 end-users in the Army and 

DFAS across 20 commands and over 200 locations, and was executing billions of dollars of transactions each month. 

GFEBS is on track to fully subsume 68 legacy systems and partially subsume 39 

systems. GFEBS has already enabled the Army to retire 20 systems and reduce 

costs for data reconciliation and manual processes. Additionally, GFEBS has begun 

disbursing funds directly through Department of the Treasury as a pilot project, 

eliminating the need for a number of interfaces. GFEBS is allowing the Army to 

reduce its IT footprint, while streamlining and standardizing processes Army wide. 

Given the significant business process change associated with GFEBS, there have 

been some challenges in ensuring data, processes, and system interfaces are working optimally. There have also been some issues in ensuring that users at both the 

Army and DFAS understand their new roles and responsibilities in this much more 

integrated system, which requires greater competence in accounting and cost management than was required in the past. The Army expected this would be difficult 

because of the size and diversity of activities that collectively provide the Nation 

with the finest land forces in the world. However, GFEBS also provides visibility 

to non-compliant business practices that were heretofore masked by our legacy systems, and allows the Army to take corrective action to redesign these processes to 

ensure auditability. We are pleased with our progress to date and will continue to 

look holistically to ensure that people, process, and technology are working in concert to overcome these challenges and achieve the return on investment intended 

with this system. 

37. Senator AYOTTE. Secretary Westphal and Secretary Matiella, what is the justification for spinning off a portion of the existing system to support some agencies 

and potentially recompeting sustainment early? 

Mr. WESTPHAL and Ms. MATIELLA. If ‘‘spin off’’ is referring to GFEBS-Sensitive 

Activities (GFEBS–SA), GFEBS–SA is being developed to meet the Army’s validated 

requirement for a classified financial management capability that integrates 

seamlessly with GFEBS to provide secure, web-based financial execution and reporting capabilities to the Army’s Classified and Sensitive activities. GFEBS–SA will 

interface with GFEBS to provide summary level financial data to facilitate total 

general ledger accountability in one system. This will enable the Army to meet the 

requirements of the FFMIA of 1996 and a Guide to Federal Requirements for Financial Management Systems. GFEBS sustainment contract will be competed in fiscal 

year 2013 (no change to previous schedule). 

LEGACY SYSTEMS VERSUS ENTERPRISE RESOURCE PLANNING SYSTEM

38. Senator AYOTTE. Secretary Westphal and Secretary Matiella, what current 

challenges related to achieving Secretary Panetta’s audit goals are due to legacy systems versus the current ERP system? 

Mr. WESTPHAL and Ms. MATIELLA. Legacy systems have some impact on the 

Army’s ability to achieve Secretary Panetta’s audit goals. However, the Army is accounting for any legacy systems that may impact the financial statements in 2014 

or 2017. First, the Army’s aggressive and successful implementation of GFEBS, 

which will be fully deployed in July 2012, significantly contributes to the Army’s 

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ability to achieve audit readiness. In addition, Global Combat Support System-Army 

(GCSS-Army) will have largely completed its first of two major deployments and be 

able to provide substantive support to the SBR assertion in 2014. Assessments have 

already begun to determine if further remediation to the legacy systems is necessary. 

The largest legacy system impact in 2014 is military pay. However, the Army has 

already accounted for the Integrated Personnel and Pay System-Army (IPPS-Army) 

timeline, which exceeds the 2014 SBR requirements, by working to assess and correct any deficiencies in the legacy military pay processes and systems. Upon ensuring the current military pay processes and systems are auditable, Army will sustain 

the current environment until the transition to IPPS-Army in 2017. Army’s audit 

readiness plan includes an assessment of ERPs to ensure that Army is aware of any 

system deficiencies well in advance of the targeted assertion dates. 

QUESTIONS SUBMITTED BY SENATOR SAXBY CHAMBLISS

ARMY SENSITIVE ACTIVITIES PROCUREMENT

39. Senator CHAMBLISS. Secretary Westphal and Secretary Matiella, I understand 

that the Army is considering competing a portion of the current GFEBS program 

for the SA. What is the Army’s plan for future SA procurement, continuing the success of the core program, and can you explain any changes in your plans for this 

effort since you last testified before this committee? 

Mr. WESTPHAL and Ms. MATIELLA. GFEBS–SA is being developed and implemented as an individual program with cost, schedule, and performance separate 

from the GFEBS base program. GFEBS-Army will leverage Program Executive Office Enterprise Information Systems’ (PEO EIS) competitively awarded existing contract vehicle to procure application development and system integration services. 

Anticipated release of the Request for Proposal (RFP) is the fourth quarter of fiscal 

year 2012. Since I last testified before this committee, a decision was made to not 

fund GFEBS-Army during the fiscal year 2012 cycle but to commence program initiation in fiscal year 2013. The Army is currently working with congressional staff 

on realignment of funding. 

DEFENSE ENTERPRISE AND ACCOUNTING MANAGEMENT SYSTEM

40. Senator CHAMBLISS. Secretary Morin and Mr. Tillotson, has the Air Force considered speeding up the deployment of the DEAMS rather than carrying out limited 

deployments at select Air Force bases? 

Dr. MORIN and Mr. TILLOTSON. Yes, the Air Force has considered speeding up the 

deployment of DEAMS. The Air Force plans to upgrade our hosting facility architecture to coincide with the upgrade of the DEAMS Oracle software. This parallel path 

to upgrade the application and the hosting facility is the most cost effective and expedient approach for delivering capabilities to the warfighter. We are carefully 

watching the deployments of the other ERPs across DOD and the Federal Government to ensure we are learning from others’ efforts. 

41. Senator CHAMBLISS. Secretary Morin and Mr. Tillotson, you testified that 

DEAMS is progressing on schedule. Can you explain how you might deploy DEAMS 

Air Force-wide to get it into the hands of the warfighters sooner? 

Dr. MORIN and Mr. TILLOTSON. The purpose of the Technology Demonstration at 

Scott Air Force Base was to identify problems on a limited scale prior to Air Forcewide deployment. Training was initially conducted by DEAMS Subject Matter Experts, and the training material was developed based on Oracle Modules, instead 

of DEAMS end-user roles and responsibilities. 

The Air Force captured lessons learned from the initial deployment and is taking 

action to resolve deficiencies in the training during the initial DEAMS Technology 

Demonstration. The Air Force is restructuring the training to align with end-user 

roles and responsibilities to ensure future training is a success and end-users receive sufficient training on DEAMS. Additionally, the Air Force is utilizing the Oracle User Productivity Kit (UPK) and hired professional instructors to support enduser training. The expected completion date for training restructuring is June 1, 

2012. Following the updates, the DEAMS deployment team will review the material 

with a focus group of Air Mobility Command end-users from Scott and McConnell 

AFBs in early June. 

128 

QUESTIONS SUBMITTED BY SENATOR JOHN CORNYN

FINANCIAL MANAGEMENT

42. Senator CORNYN. Secretary Hale and Ms. McGrath, according to House Armed 

Services Committee hearings, DOD has over 48,000 civilian financial managers. 

That’s 48,000 accountants, auditors, financial managers, budget analysts, clerks, administrators, payroll officials, and others. On top of that, it is my understanding 

that there are another 10,000 DOD military personnel who perform these roles. To 

put this into perspective, this would be enough people to operate both the ship and 

air crews for 10 aircraft carriers or the equivalent of 10 fully-equipped Army Brigade Combat Teams. It’s more than 10 times the number of combat aviators in the 

Air Force. How is it that you cannot make more progress when you have 10 brigades worth of people coming to work every day to help fix it? 

Mr. HALE. DOD relies on these dedicated financial management professionals to 

provide and manage the resources DOD uses to execute the national security mission. The number of financial managers does seem extraordinarily large on first 

glance. 

To better understand the figures in light of DOD’s enormous size (over 3 million 

employees), we have performed analysis comparing our financial management workforce to other Federal agencies as well as large private sector companies. The size 

of our workforce and the resources devoted to financial management as a percentage 

of resources are in line with these organizations, using them as comparable benchmarks. 

I agree that we can make more progress on financial management, and recent efforts including the involvement of Secretary Panetta have already sped up that 

progress. In addition, as we implement more automated and integrated processes, 

our financial management processes will become less labor-intensive, offering opportunities for reducing these numbers. Even more importantly, those personnel remaining will have more time to devote to analysis and process improvement. 

Ms. MCGRATH. DOD relies on these dedicated financial management professionals 

to provide and manage the resources DOD uses to execute the national security mission. 

To better understand the figures in light of DOD’s enormous size (over 3 million 

employees), our Comptroller staff has conducted an analysis comparing our financial 

management workforce to other Federal agencies as well as large private sector 

companies. The number of financial managers does seem extraordinarily large on 

first glance, but when described as a percentage of DOD’s population, the numbers 

align to other Federal agencies. The size of our workforce and the resources devoted 

to financial management as a percentage of resources are in line with those benchmarks. 

We agree that DOD can make more progress on financial management, and recent efforts including the involvement of Secretary Panetta have already accelerated 

our progress. In addition, as we implement more automated and integrated processes, our financial managers will have more time to devote to analysis and process 

improvement. 

43. Senator CORNYN. Secretary Hale, you have regularly testified that congressional involvement has helped spur action with regard to improving financial management. Would you agree that Congress should pass legislation codifying Secretary 

Panetta’s announcement that DOD would have an auditable financial statement on 

its SBR by 2014? 

Mr. HALE. DOD is committed to achieving Secretary Panetta’s goal of an 

auditable SBR by 2014, regardless of whether the date is codified in legislation. If 

Congress did pass legislation to codify the Secretary’s accelerated date, we recommend the legislation specify that ‘‘the general fund SBRs of material components 

are validated as ready for audit by not later than September 30, 2014’’ for consistency with the Secretary’s direction. 

44. Senator CORNYN. Secretary Hale and Ms. McGrath, could you please provide 

a date when DOD will be removed from GAO’s high risk list for fraud, waste, and 

abuse for financial management and business transformation? 

Mr. HALE and Ms. MCGRATH. GAO has established five criteria for removal from 

the high-risk list that can form a roadmap for efforts to improve and ultimately address high-risk issues: (1) Demonstrated top leadership commitment; (2) Capacity, 

including people and other resources to resolve the risk, and establishing reporting 

and accountability mechanisms; (3) Corrective action plan that implements solutions 

to address root causes; (4) Monitoring, including establishing performance measures; 

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and (5) Demonstrated progress in implementing corrective actions and making appropriate adjustments to action plans based on data. GAO makes the determination 

to remove an area from the high-risk list once they conclude that sufficient progress 

has been made in addressing the issues associated with the high-risk area. 

GAO noted in its February 2011 High-Risk Series Update that DOD is taking 

steps to resolve the issues identified by GAO as associated with the DOD Financial 

Management high-risk area. DOD is implementing department-wide financial management improvements that provide timely, reliable, accurate, and useful information for management operations, including financial reporting and decisionmaking. 

Using the established criteria, DOD believes that it is making good progress to address the issues associated with the DOD Financial Management high-risk area. For 

example, Secretary Panetta has demonstrated leadership commitment and support 

to achieving audit readiness for DOD by accelerating the date to achieve audit readiness of the SBR to the end of calendar year 2014. While GAO cited progress by 

DOD on the Financial Management high-risk area, it is unlikely that GAO will remove this area from the high-risk list before 2017, which is when DOD is expected 

to meet the legal requirements to achieve full audit readiness for all DOD financial 

statements. 

DOD believes that it has also made significant progress in the DOD Approach to 

Business Transformation high-risk area. GAO cited DOD’s progress in establishing 

management oversight and developing a strategic plan to guide business transformation efforts in its February 2011 High-Risk Series Update. The report noted 

that DOD’s senior leadership has demonstrated its commitment to address the risks 

by filling key positions, issuing directives broadly defining the responsibilities of the 

CMO and the Deputy Chief Management Officer (DCMO), establishing governance 

entities, and issuing a strategic management plan with two subsequent updates. 

DOD believes these changes have led to a much better approach to business transformation within DOD. More recent changes codified in the National Defense Authorization Act for Fiscal Year 2012 will help DOD continue to make progress, including using portfolio reviews to improve the business system investment management review process and oversight of business systems. DOD has also centralized 

defense business management under the Deputy’s Management Action Group, led 

by the Deputy Secretary of Defense. DOD is hopeful that it has demonstrated 

enough progress in addressing the issues associated with the DOD Approach to 

Business Transformation that GAO will remove this area from the 2013 high-risk 

list update. 

GENERAL FUND ENTERPRISE BUSINESS SYSTEM

45. Senator CORNYN. Secretary Westphal and Secretary Matiella, GFEBS was developed by the Army’s financial management community for the Army’s financial 

community. However, GAO found that two-thirds of invoice and receipt data must 

be manually entered into GFEBS due to interface problems. The DOD IG found the 

Army spent $630 million on GFEBS, but that at the time it was tested it was not 

compliant with the U.S. Standard General Ledger (USSGL) and the Standard Financial Information System (SFIS). How do you explain this failure? 

Mr. WESTPHAL and Ms. MATIELLA. As stated in the Army’s response to the DOD 

IG audit report, the Army disagreed with the report’s assertions. At the time of the 

audit, GFEBS was not fully configured or fully deployed and was transacting less 

than 2 percent of the Army’s general fund total obligation authority. 

The results of the GFEBS SFIS compliance review conducted in June 2011 by the 

DOD Office of the DCMO concluded that GFEBS is 92 percent compliant with DOD 

SFIS business rules with full compliance planned by the end of fiscal year 2012. In 

addition, DOD and the Army have established procedures to continue reviewing all 

ERPs for SFIS compliance going forward. 

Furthermore, as of September 30, 2011, GFEBS accounted for the missing USSGL 

and 28 DOD reporting accounts the DOD IG identified as missing. The absence of 

these accounts on September 30, 2010 (the time of the DOD IG audit) did not materially impact Army’s ability to provide accurate financial information in GFEBS. 

None of these accounts were required to support the GFEBS user base as of September 30, 2010, which only encompassed approximately 1.9 percent of the Army’s 

general fund total obligation authority. 

46. Senator CORNYN. Secretary Westphal and Secretary Matiella, how do you plan 

to reach auditability when the systems you are purchasing are themselves not 

auditable? 

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Mr. WESTPHAL and Ms. MATIELLA. Systems must meet numerous Federal standards, including the FFMIA, the DOD SFIS, and the GAO FISCAM, among others. 

However, the systems are not meant to be auditable in the sense that financial 

statements are auditable. The systems form the foundation for financial statement 

auditability. 

To ensure these systems comply with additional Federal financial system standards, the Army utilizes the Army Audit Agency to audit for FFMIA compliance and 

the OSD DCMO for SFIS compliance. 

In addition, the Army is conducting assessments to ensure GFEBS meets or exceeds Federal systems standards and can successfully meet FISCAM requirements. 

In 2011 the Army began a FISCAM assessment of GCSS–A that includes the same 

scope of work defined for GFEBS and will begin a FISCAM assessment of Logistics 

Modernization Program (LMP) in the fourth quarter of fiscal year 2012. 

GLOBAL COMBAT SUPPORT SYSTEM-ARMY

47. Senator CORNYN. Secretary Westphal and Secretary Matiella, according to 

GAO, adding the requirement that the GCSS–Army be auditable added $200 million 

in cost and 2 years of development time for a commercial off-the-shelf (COTS)

system that now won’t be ready until 2017. Long-established laws, such as

Clinger-Cohen and the FFFMIA, have mandated that the Army only purchase business/finance systems that provide auditable financial information. Did the Army 

break these laws in spending $891 million to date on GCSS-Army? 

Mr. WESTPHAL and Ms. MATIELLA. No, the Army did not break these laws. The 

GCSS-Army system uses the commercial product SAP. The SAP product does provide auditable financial information and is used to do so in thousands of companies 

around the world. 

The $200 million increase in cost and the 2 years of time added for deployment 

was to add missing units to the scope of the program. The Army was not going to 

be auditable because not all of the parts of the Army that needed it were going to 

get the system—the Directorate of Logistics (DOL) organizations were not in scope. 

The scope was expanded to add the DOL organizations on posts, camps, and stations around the Army. The DOL provides repair and return maintenance, back-up 

supply, and in some cases, a forward capability to support limited depot level maintenance. The GCSS–Army program, as originally baselined, did not include these organizations as part of the base. The scope was expanded to incorporate these units 

into the GCSS–Army system. 

ARMY MILITARY PAY

48. Senator CORNYN. Secretary Westphal and Secretary Matiella, GAO recently 

released a scathing report on Army military pay, raising all sorts of issues regarding 

identification of payroll accounts, validating transactions, and matching records. The 

report raises serious questions regarding whether the Army will be able to meet 

Secretary Panetta’s 2014 deadline for auditability for the Army’s SBR. Out of all 

the Army processes that should be auditable, it would seem that paying your people 

would be the easiest. How do you explain the problems GAO found? 

Mr. WESTPHAL and Ms. MATIELLA. Our goal for Army military pay audit readiness 

is to ensure controls are in place to continue paying soldiers the right entitlements, 

in the right amounts, at the right time, and to accurately report these transactions 

on the financial statements. Together, the Army and DFAS are working to meet the 

fiscal year 2014 SBR assertion deadline. As a part of DOD audit readiness strategy, 

we are documenting the military pay processes and control environment, testing the 

key internal controls, developing and implementing corrective actions to address 

gaps and deficiencies, and establishing a process for recurring control testing to sustain the auditable environment. 

The majority of GAO’s findings are consistent with the corrective actions the 

Army expected GAO would find because they are the same types of obstacles the 

U.S. Marine Corps has faced and the Army faces in other business processes, namely insufficient supporting documentation or inefficient processes for gathering the 

supporting documentation. The Army is working closely with DFAS, OSD–C, and 

GAO to address these findings and will have all GAO recommendations implemented by June 30, 2013. 

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ARMY ENTERPRISE RESOURCE PLANNING

49. Senator CORNYN. Secretary Westphal and Secretary Matiella, has the Army 

saved money with its deployment of its ERP systems? If not yet, when will it? 

Mr. WESTPHAL and Ms. MATIELLA. The Army will save money with the deployment of our four ERPs through the streamlining of business processes and retirement of legacy business systems. 

As of today, only one ERP is fully deployed, the LMP, however, the GFEBS will 

be fully deployed later this fiscal year. The two remaining Army ERPs, the GCSSArmy and the IPPS-Army are projected to be fully deployed in fiscal year 2016 and 

fiscal year 2017 respectively. 

Based on the standard Cost-Benefit Analysis that is approved for each acquisition 

program, the break-even point for our investment is slightly different for each ERP 

investment. For example, the break-even point for GFEBS is fiscal year 2019. Similar analysis has been completed for each investment and is reviewed and approved 

by the DOD Acquisition Authority for each Major Automated Information System. 

In addition to the calculated savings and benefits, the four Army ERPs are critical 

to the Army achieving the congressionally-mandated goal of financial auditability. 

The benefits of being financially transparent and good stewards of public funds are 

not included in the Cost-Benefit Analysis but, nonetheless, an important aspect of 

our investment decision. 

DEFENSE ENTERPRISE AND ACCOUNTING MANAGEMENT SYSTEM

50. Senator CORNYN. Secretary Morin and Mr. Tillotson, GAO found that more 

than half of the users of the Air Force’s main financial ERP system, DEAMS, were 

not prepared to use the system after the training. Who conducted this training? 

Dr. MORIN and Mr. TILLOTSON. The purpose of the Technology Demonstration at 

Scott Air Force Base was to identify problems on a limited scale prior to Air Forcewide deployment. Training was initially conducted by DEAMS Subject Matter Experts, and the training material was developed based on Oracle Modules, instead 

of DEAMS end-user roles and responsibilities. 

The Air Force captured lessons learned from the initial deployment and is taking 

action to resolve deficiencies in the training during the initial DEAMS Technology 

Demonstration. The Air Force is restructuring the training to align with end-user 

roles and responsibilities to ensure future training is a success and end users receive sufficient training on DEAMS. Additionally, the Air Force is utilizing the Oracle UPK and hired professional instructors to support end-user training. The expected completion date for training restructuring is June 1, 2012. Following the updates, the DEAMS deployment team will review the material with a focus group of 

Air Mobility Command end-users from Scott and McConnell AFBs in early June. 

51. Senator CORNYN. Secretary Morin and Mr. Tillotson, if it was a contractor, 

were they paid to conduct this training? 

Dr. MORIN and Mr. TILLOTSON. Contractors that supported the training were paid 

to conduct the training in accordance with the approved statement of work. 

52. Senator CORNYN. Secretary Morin and Mr. Tillotson, was any evaluation done 

on the effectiveness of this training? 

Dr. MORIN and Mr. TILLOTSON. An evaluation was conducted on the DEAMS 

Technology Demonstration training. This evaluation informed the Air Force lessons 

learned, which led to the development of role-based training, hiring professional 

trainers to work with Subject Matter Experts, and utilizing the Oracle UPK Module 

to support DEAMS training activities. 

53. Senator CORNYN. Secretary Morin and Mr. Tillotson, were contractors asked 

to refund any money for training that was ineffective? 

Dr. MORIN and Mr. TILLOTSON. No, contractors were not asked to refund money 

for ineffective training. The training was conducted in accordance with the approved 

statement of work. Based on the evaluation of the training, the Air Force has revamped the training to meet user needs in transitioning from the legacy financial 

systems to DEAMS. 

54. Senator CORNYN. Secretary Morin and Mr. Tillotson, has the Air Force saved 

money with the deployment of its ERPs? If not yet, when will it? 

Dr. MORIN and Mr. TILLOTSON. The Air Force has three key ERPs: DEAMS, Air 

Force-IPPS, and Expeditionary Combat Support System (ECSS). 

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DEAMS is expected to begin generating savings 1 year after Increment 1 reaches 

Full Operational Capability (FOC). FOC is projected for fiscal year 2016; therefore, 

savings are projected to begin in fiscal year 2017. Air Force-IPPS is expected to 

begin generating savings in fiscal year 2018. The ECSS Critical Change Team, 

headed by the Program Management Office, is still refining its assessment as a result of additional efforts necessary to finalize the Critical Change Report currently 

planned to go to Congress in August 2012. At that time, the Air Force expects to 

have cost savings estimated for the restructured program. The Air Force is fundamentally reshaping the ECSS program for more timely and efficient delivery of 

logistics transformation that will also enable audit readiness. 

55. Senator CORNYN. Secretary Morin and Mr. Tillotson, because of the Air Force’s 

failure to modernize its financial systems and its extremely slow progress in adopting COTS technology, how much money will the Air Force have to spend on modernizing its legacy financial systems to meet the deadline set by the Secretary of Defense for a clean audit of the SBR? 

Dr. MORIN and Mr. TILLOTSON. The Air Force is documenting and testing the existing systems and processes to identify what changes are required. This process is 

expected to continue for at least another year. Only at that time will the Air Force 

be able to estimate a cost based on identifying the extent of the required changes 

and evaluating compensating process controls. 

NAVY ENTERPRISE RESOURCE PLANNING

56. Senator CORNYN. Secretary Work and Secretary Commons, the DOD IG found 

that the Navy was not compliant with the USSGL and the SFIS. How is it that the 

Navy’s main financial ERP system is not compliant? 

Mr. WORK and Ms. COMMONS. At this point, the Navy ERP system includes all 

USSGL accounts appropriate for the accounting and business requirements of the 

Navy. The Navy does not plan to implement all the USSGL accounts defined by the 

DOD chart of accounts as there are no accounting or business requirements for 

some accounts, and to include unnecessary accounts would be too costly and administratively burdensome. For example, Navy ERP is required to use Moving Average 

Cost not Latest Acquisition Cost (LAC) for inventory valuation, and therefore does 

not use account 1521.0900: Inventory Purchase for Resale—LAC. The Navy is currently evaluating the 110 general ledger accounts mentioned in the DOD IG audit 

and will work with the OSD (Comptroller) to determine the appropriateness of including any of these accounts in the Navy ERP system. Our estimated date of updating the system with any appropriate accounts is September 30, 2012. 

The SFIS standards were developed and implemented in 2006, after the ERP system completed its design. SFIS business rules were introduced in 2009 along with 

data requirements; thus SFIS standards, rules, and data requirements continue to 

change and evolve. For example, the Navy is currently working to implement 

Version 8.0. We will continue to work within the Navy and with the OSD DCMO 

to ensure compliance with the SFIS standards. 

57. Senator CORNYN. Secretary Work and Secretary Commons, who is responsible 

for the failure of Navy ERP to comply with long-established Federal laws governing 

the purchase of Federal financial systems? 

Mr. WORK and Ms. COMMONS. Since program establishment in 2003, the Navy 

ERP has complied with all applicable Federal and DOD acquisition statutes and 

policies. 

58. Senator CORNYN. Secretary Work and Secretary Commons, how can the Navy 

expect to obtain auditable financial statements when the ERP system it is purchasing does not comply with the law? 

Mr. WORK and Ms. COMMONS. The Navy ERP system is in compliance with relevant laws and statutes. The system will enhance the Navy’s ability to produce 

auditable financial statements through significantly improved process, internal controls, and documentation. The Navy is currently conducting an assessment of the 

Navy ERP system controls for compliance with the FISCAM standards using an 

independent public accounting firm. We expect to complete this assessment by the 

end of 2012. 

59. Senator CORNYN. Secretary Work and Secretary Commons, has the Navy 

saved money with its deployment of Navy ERP? If not yet, when will it? 

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Mr. WORK and Ms. COMMONS. Monetary benefit resulting from the deployment of 

Navy ERP is captured in two primary areas: 

• Legacy IT system savings of $350 million resulting from the retirement 

of systems and fewer system interfaces. The Navy is scheduled to have retired 74 systems by the end of fiscal year 2012, with 10 more to be retired 

by 2016. 

• Supply inventory reductions resulting from improved inventory control 

and a reduction of excess inventory items. Improved inventory management 

is expected to result in a reduction in Navy Supply Working Capital Fund 

rates amounting to $276 million from fiscal year 2012 through fiscal year 

2017 and expected cost avoidance of $456 million for fiscal year 2018 

through fiscal year 2023. 

[Whereupon, at 4:44 p.m., the subcommittee adjourned.] 

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