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BUSINESS SYSTEMS MODERNIZATION AT THE

DEPARTMENT OF DEFENSE

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JUNE 8, 2005

Serial No. 109–52

Printed for the use of the Committee on Government Reform

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

GINNY BROWN-WAITE, Florida

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY

TODD RUSSELL PLATTS, Pennsylvania, Chairman

VIRGINIA FOXX, North Carolina

TOM DAVIS, Virginia

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

EDOLPHUS TOWNS, New York

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

HENRY A. WAXMAN, CALIFORNIA

MIKE HETTINGER, Staff Director

TABETHA MUELLER, Professional Staff Member

NATHANIEL BERRY, Clerk

ADAM BORDES, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on June 8, 2005 ................................................................................. 1

Statement of:

Brinkley, Paul A., Special Assistant to the Under Secretary of Defense,

Acquisition Technology and Logistics, for Business Transformation,

U.S. Department of Defense ........................................................................ 47

Kutz, Gregory D., Director, Financial Management and Assurance, U.S.

Government Accountability Office, accompanied by Randy Hite, Director, Information Technology Architecture and Systems Issues, U.S.

Government Accountability Office ............................................................... 5

Modly, Thomas, Deputy Under Secretary of Defense for Financial Management, Office of the Under Secretary of Defense (Comptroller), U.S.

Department of Defense ................................................................................. 36

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

Brinkley, Paul A., Special Assistant to the Under Secretary of Defense,

Acquisition Technology and Logistics, for Business Transformation,

U.S. Department of Defense, prepared statement of ................................. 49

Kutz, Gregory D., Director, Financial Management and Assurance, U.S.

Government Accountability Office, prepared statement of ....................... 8

Modly, Thomas, Deputy Under Secretary of Defense for Financial Management, Office of the Under Secretary of Defense (Comptroller), U.S.

Department of Defense, prepared statement of ......................................... 38

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

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

(1)

BUSINESS SYSTEMS MODERNIZATION AT THE

DEPARTMENT OF DEFENSE

WEDNESDAY, JUNE 8, 2005

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

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

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

(chairman of the subcommittee) presiding.

Present: Representatives Platts, Gutknecht and Towns.

Staff present: Mike Hettinger, staff director; Dan Daly, counsel;

Tabetha Mueller, professional staff member; Jessica Friedman, legislative assistant; Nathaniel Berry, clerk; Geoffrey Hale, intern;

Adam Bordes, minority professional staff member; and Jean Gosa,

minority assistant clerk.

Mr. PLATTS. A quorum being present, this hearing of the Government Reform Subcommittee on Government Management, Finance,

and Accountability will come to order.

On September 10, 2001, Secretary of Defense Donald Rumsfeld

outlined his vision for a new DOD. He envisioned a dramatic transformation that would correct problems outlined in hundreds of

studies and reports with a common theme: DOD’s urgent need to

modernize its management structure. From accounting to logistics,

the computer systems and business processes that support the Department’s operations are cumbersome, inefficient and hopelessly

out of date.

The world changed dramatically the day after Secretary Rumsfeld delivered that speech. Following the tragic events of September

11, 2001, the entire Federal Government reevaluated its missions

and priorities, none more so than the Department of Defense.

To the Department’s credit, the push for management reform

was not abandoned. In the face of shifting priorities, wars in Afghanistan and Iraq, and the largest deployment of National Guard

and Reserve troops since World War II, the operational impact of

management problems has become increasingly apparent. From

pay problems to inadequate tracking of supplies, the need to improve management is more important than ever before, and it must

be balanced against the urgent need to defend our Nation against

new threats.

Restructuring what amounts to the world’s largest nonmarket

economy would be enough of a challenge without the unique institutional constructs that have contributed to DOD’s problems in the

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past. While the Secretary sets the tone from the top, each branch

of the service, Army, Navy, Marine Corps, Air Force, has its own

way of doing business, its own natural constituency, and its own

appropriations, yet each branch cannot act alone. It is imperative

that joint operations run smoothly, and that information flows freely among the service branches. This is the only way DOD can function as a cohesive unit.

The vision behind Secretary Rumsfeld’s plan is not a new idea.

Several transformation efforts have come and gone at DOD since

the 1980’s, with billions spent on new computer systems that never

performed as expected. This latest effort, however, the Business

Management Modernization Program [BMMP], has made slow,

though steady, progress, earning its share of criticism as well along

the way. DOD officials have responded to critics with program improvements and a shift in focus, away from just balancing the

books and toward the true goal of supporting the warfighter. Congress has a responsibility to guide and oversee this transformation

every step of the way, to ensure that goals are clear, and that investments in computer systems are made wisely. This hearing is

part of that ongoing oversight.

We are pleased to have a panel of witnesses with a wealth of

knowledge on this topic. First we’re glad to again hear from Mr.

Greg Kutz, Director of Financial Management and Assurance at

the U.S. Government Accountability Office.

Mr. Kutz, thank you for being here. And again, we appreciate

your work and cooperation and assistance over my tenure as chairman.

Mr. Kutz will be accompanied here today by Mr. Randy Hite,

who is the Director of Information Technology Architecture and

Systems Issues at GAO.

We will also hear from officials representing the Department of

Defense. We are pleased to have Mr. Thomas Modly, the Deputy

Under Secretary of Defense for Financial Management, who will

represent the Office of the Under Secretary of Defense Comptroller;

and Mr. Paul Brinkley, Special Assistant to the Under Secretary of

Defense, Acquisition, Technology and Logistics for Business Transformation, will testify on behalf of the Business Management Modernization Program.

We appreciate all four of you being here, as well as the written

testimonies that you have provided to us, and look forward to your

testimonies here today in person.

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

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Mr. PLATTS. I now yield to the ranking member, the gentleman

from New York, Mr. Towns.

Mr. TOWNS. Thank you, Mr. Chairman.

Let me begin by saying thank you for holding this hearing on

business modernization efforts at the Department of Defense. I

would also like to welcome our witnesses from both DOD and GAO.

I look forward to your testimony.

Mr. Chairman, the chronic failure of system integration and

maintenance at DOD has been a focal point of our subcommittee

for some time now. Although many other Federal agencies have improved their financial management efforts, DOD continues to fail

in demonstrating adequate financial accounting and internal control practices. The root cause of many failures is elusive, however,

due to the stovepipe nature of many business systems, the complexity of maintaining so many financial management programs.

Since 1995, GAO has designated the financial management system at DOD as high risk due to a system vulnerability making

them targets for those three nasty words: waste, fraud and abuse.

This has been the case for the last 9 years. The inspector general

of the Department of Defense could not provide an opinion on the

agency’s 2004 financial statement. Lack of financial and internal

control departmentwide remains the root cause of these failures.

I will conclude, Mr. Chairman, by saying simply this: As we continue to allocate the necessary resources to support our troops

abroad and at home, it is imperative to ensure that such funding

is used effectively and appropriately.

I thank you, Mr. Chairman, and ask that my entire statement

be placed in the record.

Mr. PLATTS. Without objection, so ordered.

We will now proceed to our testimony. Our practice is to ask our

witnesses to stand and be sworn in, and any others who will be assisting in your testimony, if they would like to stand and take the

oath as well.

[Witnesses sworn.]

Mr. PLATTS. Thank you. You may now be seated. The clerk will

note that all witnesses affirmed the oath, and we will now proceed.

Mr. Kutz, we will begin with you. We are going to have a 5-

minute clock. From what we’re told, we’re in good shape, with votes

not until later this afternoon; so if you need to go over a little bit,

that’s fine, but we do want to get to the Q and A as well and have

a good exchange. You may begin.

STATEMENT OF GREGORY D. KUTZ, DIRECTOR, FINANCIAL

MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, ACCOMPANIED BY RANDY HITE, DIRECTOR, INFORMATION TECHNOLOGY ARCHITECTURE AND

SYSTEMS ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

Mr. KUTZ. Mr. Chairman and Representative Towns, thank you

for the opportunity to be here to discuss DOD financial management and business systems modernization. My testimony has two

parts; first, examples that demonstrate the need for reform, and

second, the status of reform efforts and two suggestions for legislative action.

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First, DOD’s financial management and related problems result

in waste and inefficiency. Let me give you a few examples: Over

$115 million wasted on unused airline tickets, the Navy paying for

fraudulent calling card charges, and communications lines that had

not been used for years; and as I testified yesterday before Chairman Shays and Ranking Member Waxman, hundreds of millions of

dollars of waste associated with DOD giving away, selling for pennies on the dollar, or destroying inventory that’s needed by our

military forces.

These problems also impact DOD’s mission and have other consequences. Examples from prior testimony before this subcommittee include substantial problems accurately paying Army National

Guard and Reserve soldiers that distracted them from their mission, caused financial hardships for their families, and has had a

negative impact on retention; additional pay problems for injured

Army Guard and Reserve soldiers that resulted in gaps in their

pay and medical benefits; and travel reimbursement problems impacting hundreds of thousands of mobilized Army Guard soldiers.

These examples, and others, clearly demonstrate the need for reform.

My second point is the lack of sustained leadership, inadequate

accountability and cultural resistance to change continues to impede reform efforts. DOD’s stovepiped, duplicative systems contribute to the operational problems I discussed and will cost the taxpayers $13 billion in 2005. That’s $35 million a day.

Attempts to modernize DOD’s business systems routinely cost

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

marginal benefits, or are terminated with no benefit at all.

DOD continues to lack accurate data on the number and total

cost of its business systems. For example, the reported number of

business systems increased from about 2,300 in April 2003 to 4,150

in March 2005. At the same time, the reported cost of these systems decreased by $6 billion. Without a handle on the number and

cost of its business systems, it’s not surprising that billions of dollars continue to be spent by the services on parochial stovepipe solutions.

Development of a business enterprise architecture, which is critical to successful transformation, has not progressed well. In fact,

after spending almost 4 years and over $300 million, DOD does not

have an effective architecture program.

DOD has recently taken steps to improve its transformation efforts consistent with the 2005 authorization act. For example, the

Defense Business Systems Management Committee has been established to oversee modernization efforts. In addition, talented individuals like Mr. Brinkley and Mr. Modly are working full time on

transformation efforts. Time will tell whether DOD’s efforts will result in improvements in its operations.

Although the 2005 authorization act is a step in the right direction, we believe additional legislation is necessary to provide a

foundation for successful reform. Our testimony highlights proposals for a chief management official, and a more centralized control

of the allocation and execution of all business systems appropriations.

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In conclusion, history shows that the status quo of part-time,

constantly changing leadership on business transformation will not

succeed. Our legislative proposals do not guarantee successful

transformation, but we believe they create a more favorable environment for true reform. With the fiscal challenges facing our Nation, and with the potential for billions of dollars of savings

through successful transformation, these proposals should receive

strong consideration.

Mr. Chairman, that ends my statement. Mr. Hite and I will be

happy to answer your questions.

Mr. PLATTS. Thank you, Mr. Kutz.

[The prepared statement of Mr. Kutz follows:]

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Mr. PLATTS. We’re going to move to Mr. Modly with your statement, please.

STATEMENT OF THOMAS MODLY, DEPUTY UNDER SECRETARY

OF DEFENSE FOR FINANCIAL MANAGEMENT, OFFICE OF

THE UNDER SECRETARY OF DEFENSE (COMPTROLLER), U.S.

DEPARTMENT OF DEFENSE

Mr. MODLY. Thank you.

Chairman Platts, Congressman Towns, I appreciate this opportunity to address your concerns about the Department’s progress in

the area of business systems modernization and improved financial

management.

Over the last several months, we as a Department have taken

a significant step forward in our business transformation efforts,

and I am grateful for the opportunity to discuss this progress with

you here today.

I was appointed to my current position as Deputy Under Secretary of Defense for Financial Management in February of this

year. Prior to that appointment, I had been serving in the Department of Defense as the Executive Director of the Defense Business

Board. This is a board of 20 distinguished private sector senior executives who have been providing advice and recommendations to

the Secretary of Defense over the last 3 years regarding transformational strategies over the Department’s business mission.

My experience with the Defense Business Board, as well as my

own private sector experience, has been critical to building my understanding of the challenges we face as a Department. There is no

larger or more complex organization in the world than the Department of Defense. However, lessons learned from other large and

complicated entities can be still applied to good effect if we recognize the scale and scope of our challenges in our environment and

are smart about the way we apply these lessons.

As a Department, we have identified and are actively correcting

the problems we have had in modernizing our business systems.

We agree with the recommendations cited by the GAO in their recent report and all their other reports on this program, and we are

taking specific action to address each individual recommendation.

What is not apparent in the GAO report, however, is the

progress that we have made and continue to make in transforming

our business systems environment, and the broader progress we

have made at transforming financial management across the Department of Defense.

The contribution the Business Management Modernization Program [BMMP] has made to this progress is significant. Most importantly, we now have a much better overall understanding of our

business systems environment and the many cross-organizational

interdependencies that must align to achieve those objectives. We

have also established data standards and strategies for the interoperability of business and financial information, and we have established a process for centralized control over IT investment for

business system modernization. These are significant accomplishments for an organization of the Department’s size.

Since assuming my current position in February of this year, I

have been also working very closely with my colleague Paul

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Brinkley, who is here with me today, to shift the BMMP program

from its previous architecture and discovery phases into a new

phase. The program is now leveraging these foundational accomplishments of the last 3 years, and focusing on implementation and

actual duty enterprise systems and standards.

To reinforce this enterprise approach to transformation, we have

established the Defense Business Systems Management Committee

[DBSMC]. As a result, overall business transformation leadership

now rests with the chairman of the DBSMC, who is the Deputy

Secretary of Defense.

Concurrent with the formation of the DBSMC, we also established investment review boards that will be required to approve

all business systems investments in excess of $1 million. This new

government will ensure broad senior-level involvement in business

systems modernization decisions across the Department of Defense.

The BMMP program itself has also identified six key enterprise

transformation priorities. Each priority has associated with it key

programs and initiatives that support the achievement of improved

business capabilities that improve warfighter support in 6, 12 and

18-month increments. The DBSMC will be actively engaged in

monitoring measurable progress for each one of these priorities.

Although the successful implementation of BMMP priorities will

have a significant long-term impact on the business operations of

the Department, BMMP is not the Comptroller organization’s sole

focus in our day-to-day efforts to improve DOD financial management. As an organization, we are committed to eliminating all

other DOD deficiencies identified as high-risk areas by the GAO,

and we are developing a realistic plan to affirm that success

through the financial audit process. This plan, which is currently

being refined and integrated with the BMMP transition plan, already has key milestones that we expect to achieve by 2007, including a significant increase in the Department’s balance sheet line

items that we expect the auditors will determine have been accurately stated. We are refining this plan and integrating it with a

systems transition plan to be delivered by the BMMP program in

September.

In closing, I would like to emphasize that systems improvements

and reductions should not be viewed as the sole drivers of business

transformation. DOD culture also must change, as well as many of

our fundamental business processes. Such change is being driven

from the top through active engagement of both the Secretary of

Defense and the Acting Deputy Secretary of Defense. The Acting

Deputy in particular is asserting his leadership of the DBSMC in

support of this new alignment of BMMP, and through a thorough

review of our business systems investments and priority programs.

Senior leadership is engaged and committed, and our success will

be a direct result of broad cooperation, collaboration, integration

and cultural change across the Department.

Thank you, Mr. Chairman, Congressman Towns, and I look forward to the committee’s questions.

Mr. PLATTS. Thank you, Mr. Modly.

[The prepared statement of Mr. Modly follows:]

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Mr. PLATTS. Mr. Brinkley.

STATEMENT OF PAUL A. BRINKLEY, SPECIAL ASSISTANT TO

THE UNDER SECRETARY OF DEFENSE, ACQUISITION TECHNOLOGY AND LOGISTICS, FOR BUSINESS TRANSFORMATION,

U.S. DEPARTMENT OF DEFENSE

Mr. BRINKLEY. Chairman Platts, Congressman Towns, thank you

for the opportunity to appear before you to discuss the Department’s business systems modernization and business transformation initiatives.

I’m Paul Brinkley, Special Assistant to the Under Secretary of

Defense for Business Transformation. I recently joined the Department from private industry, and I’m responsible for the leadership

of the Department’s business transformation initiatives, and specifically the Business Management Modernization Program.

Successful business transformation initiatives in the private sector have the following characteristics: They improve the ability of

the organization to service their customer, they leverage the managerial structure of the organization to ensure accountability, and

they focus on end-to-end business process improvement, breaking

down barriers to appropriate information access.

The BMMP program was created to achieve a clean departmentwide financial audit by modernizing and simplifying the complex

business system environment present across the DOD. The scope

of the efforts to date has been DOD-wide, focusing on establishing

a business system architecture for all tiers of the Department’s operation. As a result of this work, we’ve established data standards

and business rules that, when fully deployed, will enable visibility

and valuation of key assets through their life cycle, greatly benefiting the warfighting mission, in addition to our financial management objectives.

I’ve had the opportunity to lead business transformation within

multinational corporate environments resulting from merger and

acquisition activity. These initiatives involve the efforts of thousands of people who spoke different languages, worked in highly

varied corporate and national cultures, using different financial

currencies. They often did not initially share a collective view of

the goals of the corporation; yet I have witnessed such organizations come together to achieve remarkable change by aligning their

effort to a shared mission.

It is difficult to drive a change in business systems when the incentive to the end user is a high-level financial objective or a net

reduction in IT systems. In my time at the Department, it has become clear that at each tier of the organization, there is a passionate desire to support the warfighters in their critical national security mission and to do other things to make their job easier and to

keep them safe.

Our realignment of the BMMP requires that business systems

modernization investments directly enable business process improvements that measurably support the warfighting mission.

Streamlined business processes are, by their very nature, more financially transparent and are reliant on a smaller number of modernized business systems. If multinational corporations striving to

improve their quarterly financial performance could come together

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to achieve transformed business operations, I’m confident we can

achieve far greater improvements in the Department of Defense as

long as we focus on servicing the customer, and our valued customer is the warfighter.

To achieve this, we have structured the program to prioritize

business system modernization investments based on their impact

to our core business missions. These missions are exhibited. Additionally, we have exhibited a tiered accountability model for the

Department’s transformation effort. In the large multinational corporate environment, each level of the organization is responsible

for defining clear transformation goals and objectives associated

with their own tier of responsibility. The seams or interfaces between each layer are clearly defined to ensure that information can

flow upward to support rapid decisionmaking at the appropriate

level. We’re adopting this approach in our realignment of the

BMMP. This approach aligns business transformation to take advantage of the existing management structure of the Department.

Finally, we have taken advantage of the new management structures established by the fiscal 2005 NDAA to institutionalize appropriate senior management engagement in this critical effort. As

Tom indicated, Acting Deputy Secretary England is fully engaged

in leading the Defense Business Systems Management Committee,

which is meeting monthly and is providing full support to the realignment and the execution of the BMMP.

In September, as required by the fiscal year 2005 NDAA, we will

deliver a revised business enterprise architecture and a corresponding transition plan and acquisition program baseline. These products will reflect the realignment of the BMMP, and they will ensure that we’re providing ongoing institutionalized improvement to

our business processes that benefit the warfighter, while also continuously improving our financial transparency and reducing our

systems’ complexity.

In closing, Mr. Chairman, I thank you for the opportunity to testify before the committee about business systems modernization,

and would be happy to answer any questions you and the members

of the committee may have today.

Mr. PLATTS. Thank you, Mr. Brinkley.

[The prepared statement of Mr. Brinkley follows:]

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Mr. PLATTS. We will proceed to questions. And we have been

joined by Mr. Gutknecht from Minnesota. Glad to have you here as

part of the hearing.

We will try to stay roughly at 5 minutes per Member with numerous rounds to have a good exchange.

Mr. Kutz, I’ll begin with you and Mr. Hite. As we try to provide

effective oversight of the ongoing efforts at DOD, now, we are 4

years in with hundreds of millions of dollars expended, what would

you suggest are maybe the best benchmarks that we should set or

be looking at to assess the progress being made? How can we be

effective in our oversight responsibility? Certainly your work has

helped us identify things that we need to be watching, but what

benchmarks do you think are going to be most helpful?

Mr. KUTZ. Let me start with operational things, and then Mr.

Hite can talk about information technology. For operational, let’s

use the military pay, the hearings that we’ve had with you on those

issues, and certainly there’s benchmarks there for things that they

can do in the short term with human capital, and in the long term

with the business systems.

They have done a lot of work, in that area in particular, in trying

to improve the situation for the soldiers; however, the big concern

is are they going to ever be able to deliver a reengineered system

that they call DIMHRS, which is supposed to provide the integrated pay and personnel functionality necessary to support these

soldiers in kind of a more world-class payroll and personnel-type

situation.

So certainly you would want to see some progress operationally

in actual military pay, the ability to reconcile their fund balance

or their checkbook, and the ability to make their disbursements on

time and other types of things. And they’re working on those things

from a human capital and a process perspective, but the systems

modernization part has been very, very difficult and has not been

as successful, I would say.

Mr. HITE. Mr. Chairman, I would add to that, in doing your oversight, one of the things you want to do is fix accountability, fix accountability for outcomes. And it is the Department’s responsibility

to define what those outcomes are; heretofore it hasn’t done a good

job, but what the witnesses have told you is their intention to

produce a set of commitments by September 30th in terms of what

they intend the modernized set of systems to look like from an architectural standpoint, and how they intend to deliver on those

through a transition process where new systems will be introduced,

old systems will be retired. And to me, that would be the point of

accountability. The commitments they make in those documents

are what you want to judge them against. And the commitments

that they make should not be multiyear commitments as much as

they should be incremental commitments so, in fact, you can measure progress on an incremental basis through your oversight.

Mr. PLATTS. So in essence, the benchmarks that they set year to

year should be very defined so that we can make sure that we are

making progress.

Mr. HITE. Absolutely.

Mr. PLATTS. As we go through here, I’m sure each answer will

target at some specific examples, and I want to followup. I am

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going to try to stay on a theme, but right away, Mr. Kutz, you gave

an example, I think one of the challenges. You mentioned,

DIMHRS, as an example of trying to get more accountability with

the pay issue, which we’ve tried to focus on because of the quality

of life for our courageous men and women in uniform. My understanding of your testimony was that even if DIMHRS is successful

in coming on board, it will replace 113 of 713 current human resource systems out there. So there are still 600 more that aren’t

yet addressed.

Mr. KUTZ. There are a number. I don’t know those numbers, I

haven’t memorized those numbers, but I know there are a number

of systems that remain even after DIMHRS is implemented, if it’s

implemented.

Mr. PLATTS. Is that an example of us taking—trying to take a

step forward at the Department, in your opinion, but in the long

term not making a lot of progress because we’re addressing 113,

but there are 600 that are still going to be out there.

Mr. KUTZ. Well, certainly if DIMHRS replaced 113 and provided

the kinds of capabilities that they have planned, that would be a

step forward. No one could doubt that. But the fact that there are

a lot of other systems out there—and the other thing that we’ve reported on, there appeared to be other investments that they were

making that were duplicative with DIMHRS, and that would be the

bigger concern is that DIMHRS is supposed to provide capabilities

A, B and C, and we saw money being potentially spent on duplicative systems also trying to provide those same capabilities. And

that’s the longstanding problem that they’ve had is making investments in multiple systems that do the very same thing.

Mr. PLATTS. As you reference in your testimony, there are now

over 4,000 systems out there not coordinating with each other.

Mr. KUTZ. And that’s a moving target. I mean, that’s the number

it was an as of February or March of this year. And I know they’re

continuing to try to refine their estimates and determine what are

and aren’t systems, but, yes, that’s a large number of systems.

Mr. PLATTS. Mr. Kutz, you said in your oral testimony that we

are here 4 years, $300 million plus, and the Department does not

yet have an effective enterprise architecture. How would you describe what they do have 4 years and $300 million later. Do we

have a foundation?

Mr. HITE. At this juncture I would say—and I would quote the

DOD witnesses where they said they have a better understanding

of the complexity of what they’re dealing with.

In terms of the foundational artifacts, the models upon which to

build on, I think we’re at a point where we have very little utility

and a lot of investment to show for it. So we certainly aren’t in a

position where we’ve got value commensurate with cost and time

that has gone into this. And I think what the DOD witnesses are

describing is a—they describe a realignment or restructuring of

their efforts. And what they’re talking about is narrowing the

focus, narrowing the scope of what’s going to be dealt with on a

DOD-wide basis from an architecture standpoint and what the

services are going to be allowed to pursue separately.

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So I think we’re at a point now where what we’ve done up to this

point hasn’t produced a whole lot of value, and we’re trying to salvage what we have, and I think there is very little to salvage.

Mr. PLATTS. I want to yield to the ranking member, but give the

Department a chance to respond on that specific question.

Expanding on your statement of where you think the Depart- ment is after 4 years and $300 million, I want to say that I appreciate both of you in coming to the Department from the private sector.

I also appreciate that you’ve been in your position, Mr. Modly,

maybe 4 months or so. I imagine, given the complexities, you are

just getting yourself situated to understand what the challenge is.

And Mr. Brinkley, you’ve been there a little longer. But the fact

that you have come from the private sector to public service, we’re

grateful for that, and we want you to succeed. But I would be interested in your frank assessment of how you would characterize

where we are. What do we have after 4 years and hundreds of millions of dollars?

Mr. MODLY. Sir, my assessment would be—and I don’t take issue

with anything Randy said on that point. I think that there are elements of what we paid for over the last several years that we will

definitely use, will definitely be leveraged, and will definitely be

critical to the transformation efforts going forward. There are other

elements that, in my candid assessment and my colleague’s candid

assessment, we probably won’t be able to leverage.

But I would say that the value of the last 3 years is broader and

less tangible, and that is, having the opportunity to work across a

Department and understand what it’s going to take to actually get

this done is a huge discovery process that we needed to go through

as a Department, and we understand that now. We have developed

some very key enterprise standards that we are going to implement, such as a standard financial information structure, which is

an—essentially a common financial language. To put it in context,

every different financial system within the components of the Department speaks a different language, they code financial information in different ways. Getting to a process and to a consensus

across this organization in terms of what that common language

will be is very difficult. We have concluded that, and we’re starting

the phase of implementing that starting this month.

So this is an evolutionary process. I think we have some value;

we’re trying to figure out what exactly that is, and what we can

leverage going forward. In terms of the deliverables that we’re

going to have in September, we feel very confident that what we

will deliver in September will allow us to transform along the key

priorities of the program. And in terms of measuring that—which

I think is another point that was made—measuring our progress

based on the number of systems that go away to me, coming from

private sector—and I think Paul would agree—is not a valid way

to measure whether or not we’re getting value.

What we’ve asked all of our enterprise priority leaders to do is

to determine 6 months, 12 months, 18 months from now what will

we see in terms of improved business operations because of the implementation of these systems. We don’t want them to think about,

oh, we’ll have a final operating capability on this system in 2 years.

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That doesn’t tell me anything. I want to know what is it going to

do to improve warfighter support, and that’s really what we’re focusing on.

So if you want to hold us accountable, we will have those 6, 12

months deliverables prepared in September. And we’re holding our

teams accountable to that, and we should be held accountable to

that as well.

Mr. PLATTS. Mr. Brinkley, do you want to add anything?

Mr. BRINKLEY. I get choked up on the topic of architecture.

The only thing I would add is that you made the point in your

introductory statement, and Mr. Kutz reinforced it, the effectiveness of an architecture is a direct measure of how useful it is, how

you can implement it.

When we talk about what we can use and not use in the architecture effort to date, a big delineator for Tom and I is what we

have, given the managerial structure of the Department and the

appropriation process used to fund systems initiatives in the Department, the ability to rapidly deploy and implement. And defining the scope of the effort so that it is clearly aligned and not in

conflict with the managerial structure of the Department so that

we can put in place accountability for implementation, as Tom

mentioned, the data standards that ensure interoperability for materiel management, that ensure the ability to cascade financial information up the Naval rapid decisionmaking. Those are things

that we are very much empowered to do at the top level of the Department. And so the architecture effort is focused on those things

because they translate into direct benefit.

So this discussion of what has been useful and not been useful

has a lot to do with what can we use and rapidly deploy. And that’s

where we want the future architecture effort to focus, as opposed

to more of the discovery—as Tom described it—effort that’s taking

place today.

Mr. PLATTS. Would it be accurate to say that what you’re seeking

to do now is to have a more realistic architecture as opposed to an

idealistic architecture?

Mr. BRINKLEY. That’s correct, one that is not in conflict, as I

mentioned earlier. It may be an interesting thing to try to forecast

the ability to put all of our logistics operations on three or four systems when we currently have 2,000, but it’s not a very relevant

topic in terms of our ability to quickly transform logistics. That is

a good example.

So focusing on data standards that, regardless of whether we

have 2,000 logistic systems or 1 logistics system, they enable us to

interoperate and communicate and act as a single enterprise to

support joint warfighting, that’s a very powerful and deliverable

objective. And it also translates very well into a benefit to the joint

warfighting mission of the Department.

Mr. PLATTS. You’ve given me some additional followups, but I do

want to yield to my ranking member, Mr. Towns, and I will come

back to you on that same issue.

Mr. Towns.

Mr. TOWNS. Thank you very much, Mr. Chairman.

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Let me begin with you, Mr. Kutz. You mentioned that legislation

is necessary. Could you be more specific in terms of exactly what

you’re talking about?

Mr. KUTZ. Yeah. We had two proposals in our testimony, one is—

which we talked about at prior hearings before this subcommittee—is a chief management official, or Deputy Secretary for Management, which would be a level two political appointment, Senate

confirmation, that would have a 7-year renewable appointment

term, that would be the transformation focal point for the Department full time. And that’s within one of the reasons we believe that

we’ve had trouble transforming is you have part-time leadership

that has not been sustained over more than a couple of years, and

so one of the potential—and again, it isn’t the only solution, but we

believe it would provide a stronger foundation for a transformation

to be successful.

The other one has to do with the way that the business systems

modernization and overall business system appropriations are controlled and appropriated from a budget and execution standpoint.

Right now there are a lot of people that get money to spend on the

business systems, and there’s not a whole lot of corporate oversight

or control over that, so that’s how you sometimes get multiple systems being developed at the same time that do the same thing.

And that’s how you get to the thousands and thousands of systems

is because different people have gotten money to implement systems without a whole lot of corporate oversight.

Mr. TOWNS. Let me ask you, Mr. Modly, do you feel that legislation is necessary?

Mr. MODLY. No, sir, I don’t believe that legislation is necessary.

The legislation——

Mr. TOWNS. Is that because you’re new?

Mr. MODLY. The department is still trying to react to the legislation from last year. But honestly, sir, at this point I don’t think

that legislation that Greg is talking about is necessary.

We received some very strong language in the NDAA Act from

last year that established the Defense Business Systems Management Committee. And in my view and in the Department’s view,

that does address some of the concerns that Greg mentioned. One

is the issue of investment control over systems investments. We are

now required by law to review and approve any business system

investment over $1 million, and so we’ve established investment review boards to do just that. Those have to be approved by the Defense Business Systems Management Committee. That committee

is chaired by the Deputy Secretary of Defense, and vice-chaired by

a level two political appointee, the Under Secretary of Defense for

Acquisition Technology and Logistics.

So in my view, I think that this governance that was imposed in

the law last year should be given a chance to work. I think we can

make it work. In terms of senior level engagement, Paul and I are

actively engaged in this program daily. So I believe that we have

an opportunity here, with the law as it is, and an acting Deputy

Secretary who, quite frankly, is very interested in business transformation and is very involved in working with us, to move this

program forward.

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Mr. TOWNS. You know, when you look at the examples that were

given, you know, they make you wonder, I mean, when you look

at just travel alone, I think alone was $150 million; is that correct?

Mr. KUTZ. $115 million of unused airline tickets; is that the example?

Mr. TOWNS. Yes.

Mr. KUTZ. Yes.

Mr. TOWNS. I mean, so you’re saying now that the type of system

that will be implemented will be reviewed by this group, and they

will make a decision as to whether it comes in or not? I mean, explain to me——

Mr. MODLY. Sir, every system that will be invested in in the Department of Defense for business management will be reviewed by

this investment review committee; that is the role of this new investment review process.

The specific instance of the $115 million in unused airline tickets

is a problem. It is a combination of a systems problem and a business process problem and a training problem. It’s not simply dependent upon a systems problem. We have taken aggressive corrective action to address that, and I would be happy, for the record,

to submit specifically what we’ve done to address the unused airline ticket issue.

However, this is not—solving the business management of the

Department is not just relying on a systems approach. There won’t

be one system, there will be multiple systems across the Department. Also, what we want to be able to do is to have a rational approach to understanding what those systems are, do they make

sense, do they fit into the architecture that we’ve established at the

high level for the Department? And that’s what this new governance committee is allowing us to do. In the past, Greg is right, that

has not taken place in the Department.

Mr. TOWNS. Let me just go back here.

Mr. Kutz, if DOD proceeds with the business enterprise architecture, some very difficult decisions will have to be made on which

systems are turned off. What are some of these issues, and what

can the Congress do to assist in this matter? I hear you posing a

proposal and all that, but it seems to me that more help is needed.

Mr. KUTZ. Well, I think one of the issues is going to be—it’s similar to the BRAC issue where you’ve got a lot of contractors and a

lot of systems involved. To the extent you do end up having less

system somewhere—and that may not be the right way to judge

this, but ultimately if you are successful with transformation, you

may not have 4,000 systems, you may be able to replace all the

travel systems with the defense travel system, for example.

There are contractors out there that have business and jobs and

all those types of things associated with the systems that are going

to be terminated, and so—and I think in the past when the Department has tried to terminate those systems, they have gotten some

pressure from the Congress, from their constituents, on those types

of issues. So realistically that could be something you need to help

them with respect to being able to streamline and provide end-toend solutions in the Department for the various issues we talked

about today.

Mr. TOWNS. Right. Thank you.

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Mr. Modly, according to GAO’s testimony, there were 30 systems

valued at $243 million that were modernized in 2004, but failed to

be reviewed by the Comptroller’s Office. Can you offer us any explanation as to why these systems were not reviewed?

Mr. MODLY. Yes, sir. The requirement for the Comptroller to review systems investments over $1 million was imposed by a Comptroller memorandum in an enforcement of a law from the fiscal

year 2003 act. We did not have, at the time of that law, an infrastructure within OSD to perform that. So it’s been a process of discovery, as I mentioned before, first of all understanding where the

systems are, then getting a message to the system’s owners that

they needed to submit for certification. So I would candidly admit

that in that first year we missed some systems, we did not get

them all. We are trying to get better at that process.

One of the motivators behind our work on the development of

these new investment review boards [IRB’s] is to create a system

that provides visibility and understanding where all these systems

are that we need to get certified so we don’t have that problem

again. We are also streamlining the process. What happened in the

past is that program managers would submit their systems for certification, and they ended up getting lost in a series of different bureaucratic processes in the Department. One of the key elements

of making these IRBs work is ensuring that we have a very

streamlined process, a standard set of questions and a standard for

determining whether or not these systems are compliant. We will

do much better in the future on those.

Mr. KUTZ. Could I add to that? Because I think one of the other

problems is that for them to even know which systems have obligations of $1 million or more requires a data call. They do not have

systems and processes in place to automatically be able to figure

out who is obligating over $1 million. That gets back to all the pots

of money that are out there for systems investments. And so they

don’t have an automated way to even determine after the fact who

obligated money for systems modernizations. So I’m not sure how

they will ever solve it until they’re able to deal with that, because

otherwise it’s an honors system.

Mr. TOWNS. Mr. Chairman, I know my time is up, but I sure hate

ending on that note, but go ahead.

Mr. PLATTS. We’ll come back to you.

Mr. Gutknecht.

Mr. GUTKNECHT. Well, thank you, Mr. Chairman, and thank you

for having this hearing.

You know, a few years ago we had some scandals in the corporate community, and the Congress responded, and some might

even say we overreacted by passing Sarbanes-Oxley. And among

other things, we require the CEOs now to sign off on their financial

statements.

In a sense, we are the board of directors here, the Congress is

the board of directors of this massive company called the Department of Defense. And it is troubling to me, as just one Member,

that this Department, for as long as I’ve been here, I think, cannot

pass an audit.

65

I guess if I were to boil it down to one simple—maybe not so simple question, is can the Department of Defense pass an audit

today? And if not, when do you think they will be?

Mr. MODLY. Is that directed to the GAO——

Mr. GUTKNECHT. Anybody who has a mic.

Mr. MODLY. I can take this, sir, absolutely.

I would say in my professional opinion that the Department

could pass an audit today if it had enough money and enough resources to do it. That means having the ability to trace every single

transaction, understand the manual processes that are required to

bring information up to the corporate level. But understand, sir,

that we have 59 separate entities that have to submit financial

statements in order for us to give a clean opinion. I don’t think that

it’s a wise use of the taxpayers dollars, and we’re talking billions

of dollars in order to be able to do that.

One of the things that we’re trying to do with the BMMP program is over time drive that cost of audit curve down by increasing

financial visibility and traceability through both systems and

standards, so that at some point in the next several years we will

be able to make those investments to do the manual work-arounds

required to get a clean opinion. That is our position.

So I think we could get one. I believe it would cost in excess of $1 billion to do it in a year, and I don’t think that is a wise use

of taxpayers dollars to do it.

There is a difference—let me also state that there is a difference

between being accountable and having that accountability affirmed

in a clean audit opinion. And I understand the way that the private

sector requires clean audit opinions for their financial statements.

In our case, we can still show that we’re accountable, we can still

show that we can trace where the money is going into certain programs and how it’s being spent and not necessarily pass the technical qualifications by an audit. But I will say that the Department’s goal is to get a clean audit opinion. BMMP is a process and

a program that is helping to drive us toward that.

Mr. KUTZ. Let me add a few things. The kind of audit he’s talking about they call a ‘‘shoe box audit’’ where basically management

can’t account for everything on their own, so they throw all the

records in a shoe box and have the auditors sort everything out.

That’s honestly what they call it. And so I don’t know how many

years that would take or how many billions of dollars, or if it’s even

feasible.

But right now they don’t have a realistic, feasible plan as to how

to get an audit, and really that’s not the goal. The goal is to provide world-class mission support to the warfighter. I think we

agree with them on that issue. But you have lots of issues with

human capital, the business systems we talked about here today,

and I don’t believe they’re anywhere close to being able to pass an

audit. Certain parts of the Department have been able to pass an

audit, but not the ones that are very systems-reliant and that have

significant human capital issues.

Mr. GUTKNECHT. Well, could you reduce that to a couple of sentences that I could explain that to my constituents in? And I’m serious about this. And it’s not just the Department of Defense, we

have a lot of departments that can’t pass audits right now. And on

66

one hand—and we have business people in our districts who say,

wait a second, you know, I have to sign off on this, and if it’s not

right, I can go to jail. I mean, how come the government isn’t held

at least as accountable as I am? And so what I heard is a lot of,

you know, systems technospeak here, but that still doesn’t quite

answer the question.

And my real concern is this—one other concern, and that is that

we sort of have a pattern around here, every year there are some

hearings like this or there are studies or reports that come out—

and I’ll pick on a different department for a minute, the Department of Education can’t pass its audit. And so when it comes time

for their appropriation, ultimately the Congress decides, well, I

guess we’re just going to have to give them more money. And to

a lot of our constituents that really doesn’t pass muster.

So are you telling us that in 3 years or 5 years—and I would remind you that we won World War II in 31⁄2 years. The Department

of Defense can do things it wants to do when it wants to do them,

but this has never been a very high priority, in my opinion. I mean,

if this were a high priority, we would have this problem solved

today. And I guess I’m really trying to find out what do we do to

put a little fire under the folks down there to really make this a

high priority.

Mr. MODLY. Sir, let me say that a couple of years ago the Comptroller of the Department of Defense put a stretch goal out there

of trying to achieve a clean opinion by 2007. And financial improvement plans were developed to support that process, and these are

plans that have to be developed through all the services and all the

agencies, etc. We were prohibited by law this past year, in NDAA

language in section 352, from spending any money on those plans

until such time as we got our transition plan delivered and we got

the architecture delivered.

So some of our inability in the last couple of years—or in the last

year at least—has been constrained by the Congress’s restrictions

on us spending money on its work.

Mr. KUTZ. Let me just give you one of the causes real quickly,

because I think——

Mr. GUTKNECHT. Can I just go back? So section 352—so when

the bill comes up this year, some of us ought to pay attention to

that section, because I don’t remember that being debated on the

House floor.

Mr. MODLY. Sir, we were restricted from spending any money on

the midterm financial improvement plans which were designed to

get a clean opinion by 2007.

Mr. GUTKNECHT. OK. Thank you.

Mr. PLATTS. Thank you, Mr. Gutknecht. I would like to comment

on the issue of priority. I think one of the challenges here is that

we thankfully do have a Secretary who, as I referenced in his statement on September 10th—who has made this a priority, the challenges we’re dealing with, almost 50 years’ worth of actions and decisions that have complicated the ability to fulfill Secretary Rumsfeld’s priority in any faster or timely sense because we’re trying to

undo decades of poor management decisions, and I think that’s

what you’re trying to get our hands around to go forward.

67

You did touch on, though, I think, the reason the limitation was

placed on DOD is that rather than spending money on trying to get

a clean audit that would result, in essence, in this heroic effort to

get an audit that would not really benefit us in the sense of changing the practices of DOD is that we would be better focused on trying to improve the processes and the internal controls that would

then generate the clean audit, cleans books that can be audited.

And then you—Mr. Modly, you said that you were not able to get

a clean audit today without a huge effort, and the merits of that

would not be very wise to go forward with. How about in trying to

get closer and closer to an audit regarding internal controls, which

gets to that foundation that we’re talking about, is that something

that——

Mr. MODLY. Yes, sir. That’s a very good question. And what we’re

doing now, as we’re working on our transition plan for systems and

understanding that better and looking at the deliverable for September, we are concurrently with that developing this comprehensive audit plan or audit readiness financial improvement plan for

the entire Department so that we understand what are the system’s dependencies and when do we expect those to be ready, and

understanding how the audit process will marry up with that over

time.

We have, within that initial look, an opportunity not to take heroic measures, and yet make substantial progress between now and

2007, if you look at line items, and getting favorable opinions on

certain line items.

Right now if you look at our balance sheet, on our asset side we

have basically clean opinion on 16 percent of our assets and about

49 percent of our liabilities. We think we can take that number to

about 62 percent of our assets by 2007, and about 53 percent of our

liabilities by 2007, and that is by focusing on business process improvement, not taking heroic measures, getting things ready for

audit, and having the auditors take a look at them and giving us

a favorable look at those pieces.

So we do have an incremental approach. We all agree, sir, with

you that this is critical to our credibility with the taxpayers and

our accountability with the taxpayers, so we’re not abandoning that

process; however, we want to make sure we’re doing it in a way

that is concurrent with the process of improving how we’re doing

our business, not just to be able to have an opinion that a year

later we can’t sustain.

Mr. PLATTS. That’s been the focus of this committee not just with

DOD, but across the board, in working with GAO is to get in place

those processes that year in or year out you’re able to have effective management information, and not just at the end of the year

to try to get a clean audit, but you have those systems in place.

And while, one, I appreciate your frankness in that 2007 is not doable for a true clean opinion, your willingness to share that—and

maybe only being there 4 months, your willingness to be more

frank. But I think that’s good because, quite frankly, I would rather, if we have to, wait until 2008 or 2009 or 2010 because we truly

are getting to the root of the problem rather than just trying to

come up with what looks like but really doesn’t address the problems.

68

I do want to go back on the issue of the million dollars, the approval process. You referenced the 2003 legislation and then the

2005, and in your testimony you talk about this requirement. We

did have it in law in 2003 as well, but as GAO pointed out, hundreds of millions of dollars was expended on systems improvements

that were not approved. I want to better understand the cause. You

reference not having a system in place to get the word out. I’m not

certain why even in a blanket departmentwide e-mail that says,

here is a new law, anybody that’s looking at systems improvement,

this is a law that we need to comply with. What efforts were made

to get the word out? Because I guess what I’m trying to get to is

why should I feel comfortable that because of the 2005 law, we are

actually going to see approval occur or funds not being spent versus the hundreds of millions of dollars that were spent despite the

2003 law being in place?

Mr. MODLY. I’m going to let Mr. Brinkley answer that because

he’s been very closely involved with the new IRB process.

Mr. BRINKLEY. First of all, the 2005 NDAA includes the

motivator of Antideficiency Act violation, in the event that funds

are obligated without the fund approval. That serves as a

motivator, obviously.

To speak to why we feel more confident now than we did in 2003,

there are two reasons. One, as Randy mentioned, you were relying

a bit on an honor system in something very new. In the Office of

the Secretary of Defense, traditionally the majority of its responsibilities are policy setting and regulation to policy. And when the

Department declares that organization is now going to take an active role in business systems management and business systems

oversight, you’re creating a need for a set of skills, a set of managerial acumens that don’t exist, or did not exist at the time at the

Department level, and the Department needed time to put that in

place; communicate effectively with the different functional communities, logistics, acquisition, finance and personnel across the Department; establish those channels of communication so that the

awareness was completely embedded across the Department at

many different tiers.

So we are confident, and again, given the language in the NDAA

and the effort to date to establish those managerial disciplines that

did not exist before at the DOD level, that we will have a much

more effective review process going forward.

Mr. PLATTS. Mr. Kutz, your thoughts on that? The change from

the 2003 requiring it and your investigation finding all those approvals, your assessment of whether we’re at a point where we are

likely to be more successful and not repeating itself.

Mr. KUTZ. We haven’t looked at whether we’re more likely going

forward. I do believe that a little more teeth in it with the

Antideficiency Act for an obligation over a million that’s not approved provides a little bit more incentive for people not do it, but

it is still the Department of Defense, and there are a lot of

Antideficiency Act issues that they had over the years, so that may

not even deter people from being honorable in coming forth with

the information, because again, I think they don’t have—I’m still

not aware, I never heard them say they have a system where they

69

can systematically go in and identify all obligations over $1 million

related to IT that would tell them for sure they got everything.

Mr. PLATTS. That was going to be my followup is to have an actionable violation, you have to know about it, and you only knew

about it here because of GAO going in and doing a review. And as

best possible, I think in your report or your statement you are not

even sure you found everything that is out there.

Mr. KUTZ. We relied on a data call.

Mr. PLATTS. Right. So again, it’s a good faith effort of what was

done or not. So what are you trying to do to better ensure that you

are crossing the Ts, dotting the Is, that this isn’t going to continue

to go on?

Mr. BRINKLEY. We indicated in our report to Congress in March,

and to reiterate here, the NII organization, the CIO’s organization

within the Department, has published a policy establishing a single

repository for defense business systems across the Department of

Defense and has set firm dates for getting the information about

our business systems inventory—Mr. Kutz referenced the 4,000

systems, the 2,000 systems—to get that inventory accurate, to get

it in a single repository so that as we assess modernization investment, it’s done off of a base of information as opposed to a strict

honor system. So we are moving to address that, and we’re working

with the NRI organization to make sure that repository is fully

populated and exercised.

Mr. PLATTS. One followup, and then I will yield to Mr. Towns.

We’ve talked in this committee a number of times about consequences, and one of the challenges in Federal Government is lack

of consequences. Regarding those expenditures that were over $1

million and not appropriately approved, has there been any investigation into how many, if any—I will assume there were—were

done with knowledge of the other tier requirement, and what consequences were suffered by those who made the expenditures contrary to Federal law? Because that goes to that issue. And my constituents say, I’ve got to follow the law back home, and if I am

speeding, I’m going to get a ticket. If the Federal employees violate

the law, what happens? Is there any knowledge base there?

Mr. MODLY. Sir, I’m going to have to investigate that and get

back to you on that. I don’t know for certain, I was with the Department in 2003, but with the Defense Business Board, and I was

not actively engaged in the certification process. I’ll investigate

that.

Mr. PLATTS. If you could followup, and I would be interested in

was there anyone held accountable for expending funds contrary to

Federal law because of not having the Comptroller’s approval for

expenditure? Mr. Kutz, from your report, I don’t know that you’re

aware of any consequences.

Mr. KUTZ. I’m not aware of. And we do a lot of fraud, waste, and

abuse-type allegations in the DOD, and that is one of the issues

that no one is ever held accountable for things even more severe

than what we are talking about here, so that leaves an environment that even if they get caught they know nothing is going to

happen.

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Mr. PLATTS. I want to go back to that environment issue and the

consequences. I’m going to yield to Mr. Towns. I know you have a

time crunch.

Mr. TOWNS. You know, thank you Mr. Chairman. And let me tell

you, you guys are a breath of fresh air, I want you to know, Mr.

Brinkley and Modly, you really are. And I say that in a sincere

way. But I’m not sure how you’re going to get a handle on this, because as I understand it, many agencies place extensive reliance to

contract and support to prepare financial statements. How does

this impact on an agency like yours in building and sustaining a

long-term financial management reform? I know—are there human

capital needs? This is just not clear to me.

Do you really have enough people to do this? Are you—I mean

someone, something, is missing here and I’m not sure what it is.

Mr. MODLY. We absolutely do not have enough people in the Department of Defense to do the audit work that is required to get

a clean opinion. And so we do rely on contract personnel to help

us with that.

Not only do we not have the skills, we don’t have the sheer volume of people that we need, so we do rely heavily on a contractor

base to help us with both preparing for audit opinions or preparing

our financial improvement plans, but also in actually executing

those. So we are heavily reliant on our contractor base to get a lot

of this work done.

Mr. TOWNS. That makes it more difficult to get a handle on it.

Mr. MODLY. I think it requires a level of managerial expertise

within DOD that Mr. Brinkley and I are really trying to upgrade

by bringing in some more people into the government who have

that level of experience and have that level of expertise to help

manage the contractor base; and that is a long term challenge that

we have, but we are exercising use of special hiring authorities,

etc., to bring in more people that have broad experience within the

private sector doing this type of work. As stated before, the Department’s never had a clean financial opinion for the entire Department, and the government itself is challenged in that way. So having a cadre of people in the Department who really know what it

takes to get it done is a challenge, and so we’re trying to bring

more people in from the outside but bring them in as government

employees rather than as pure contractors, so we can have people

inside the Department that can manage that contractor base so we

can get that done.

Mr. KUTZ. I would agree. That is a critical element here of when

they come up with this plan they are developing, human capital is

probably more important than anything else, because without the

human capital the systems are not going to happen, the audits are

not going to happen, and the transformation is not going to happen. And the market is fairly tight right now to bring in the financial people. We are competing for the very same financial people,

and IT people like Mr. Hite, that they might be competing for out

there. And the market is tight. There is a lot of consulting firms

and accounting firms and others that are competing for that same

group of talent, particularly in the Washington, DC, area. I think

it is a little easier to compete for talent outside the Washington,

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DC, area in the Federal environment, and I think they found that

also in the field.

Mr. TOWNS. Thank you very much Mr. Chairman. I yield back.

Mr. PLATTS. Thank you, Mr. Towns, I appreciate your participation.

I want to come back to the issue of the environment of the Department, and I think we are fortunate to have Secretary Rumsfeld

and somebody who, on September 10th and even despite the attacks of the 11th, has maintained his commitment to this transformation on the business side of it. If we do better with how we

manage the Department, we are going to do better with how we

support the warfighter, and I think that is what this is all about,

is in the end we saved $150 million that was lost on unused tickets, plane tickets. That is $150 million that is either in quality of

life for soldiers and their families or to equipment, armor, whatever

it might be.

You mentioned, Mr. Modly, in your testimony, that you and Mr.

Brinkley are working together, in kind of shifting the focus of the

business management modernization program into this implementation phase. And in essence, the way I read it, is trying to sell the

merits of it; that to get that buy-in within the Department, that if

we do this, there is going to be benefit all around to everybody, especially to our mission in supporting that warfighter. How do you

think that is going? How is that sales effort going as you try to

change that mentality over there?

Mr. MODLY. I’m getting a little tired of having to go with him everywhere.

But other than that, it’s been very effective, sir. We try to go out

as often as we can together to show that finance and Acquisition,

Technology, and Logistics [AT&L]—and AT&L is really where a lot

of these business transactions happen, that is where they occur.

And the culture of the Department is not to value the financial information that comes out of that transaction. We are trying to go

out and communicate together that the program is an enterprise

program. We tell our people, think about the enterprise, don’t think

about your silo. It is the whole purpose behind shifting the focus

more horizontally, looking at end-to-end processes and looking at

the customer as being the warfighter.

So for us it has been very effective, and we are going to continue

to do it as long as we possibly can, because that message has to

go to a very, very large organization. It is not just he and I, but

it is the people that work for us, and the people that work for those

people, that have to also start communicating at that level. So as

long as we stay engaged in our level, I think that helps reinforce

that message.

Mr. HITE. Mr. Chairman, if I can add to that, we talked about

the business enterprise architecture up to this point and the modernization program and what we have after 4 years. I think one of

the root causes for how little we have thus far has been the absence of an effective communications strategy to achieve that buyin. So I would applaud these efforts and raise them up as keys to

success for the modernization program.

Mr. PLATTS. Mr. Hite, that leads to a question for all of you, and

especially starting with our DOD officials and the topic of chief

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management officer. I agree with Mr. Towns’ statement that you’re

a breath of fresh air in your frankness and your approach on this

issue. The worry is that a year from now, you for whatever reason

choose to do something else, and we are always starting over. And

that when we get this commitment, get the leadership—Secretary

England, who I think the world of and who has served us so admirably in a number of positions in the last 4 years, very difficult

times, has always stepped forward when asked to, and doing a

great job, but that worry about turnover personnel and then we

lose that momentum. That is what I see the CMO being about is

ensuring that there is a continuity. And I want to make sure I understood from your testimony, that your statements here today and

the position of the Department is not supportive of legislative CMO

position; is that accurate?

Mr. MODLY. That’s correct sir.

Mr. BRINKLEY. That’s correct, sir.

Mr. PLATTS. Maybe, I don’t mean specifically as proposed in the

Senate bill and what is associated with that legislation, but do you

agree that having a more permanent position that we know is

going to be across administrations and long term, maybe would

help to, you know, change some of the mindset, the environment

in the Department; that if everyone says, well, hey, Congress really

means it this time, they have created this new position, it is a 7-

year term, 5-year term, 10-year term, whatever it may be, but we

really need to do this, is there a hope—is that a legitimate hope

if we go that route.

Mr. BRINKLEY. I’ll respond. I think the formal position of the Department is that there is great risk in separating business activity

from the warfighting activity through dividing the Deputy Secretary’s responsibilities in that manner. He gave a more formal response to that, and that was the crux of it. If you think about a

world in which we’re moving to performance-based logistics and

we’re having contract business resource support delivering value

into theater, directly to the warfighter—and all of our theme today

has been about clearly articulating the benefits of business process

reengineering to the warfighter—anything that creates a separation of the warfighting activity of the Department from the business activity of the Department, works counter to what we’re trying to drive home, which is the very real fact that these things are

entirely complementary, and they’re supportive and they are going

to get more supportive as we move into new arrangements with the

defense industry base. So that is one response in terms of why that

particular proposal is not appealing to the Department.

We are working to establish continuity in the program. Tom and

I talk all the time. People are constantly asking us the same point

you made: What happens when you guys go? I want to talk about

that in a moment, but specifically we have established the BMMP

as ACAT 1 acquisition program of special interest to the Department of Defense that, in and of itself, with a program baseline, creates a continuity that extends beyond resource turnover at the senior level as well as even administration turnover. So we are taking

advantage of that.

We are continuing looking at ways, as Tom mentioned, people to

bring in, private sector, for termed and extended appointments and

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permanent career positions within the Department to contribute

and provide continuity and to create a critical mass of leadership

that understands the importance of this and has experience actually engaging in effective business transformation activity.

But the most important point I want to focus on here today is

that the leadership issue is a significant challenge for the Department, but we can put that leadership in place and there has been

leadership in place in the past, and past efforts of the Department

have not succeeded to its full extent because the mission of the Department did not require it to succeed. We have a moment in time

here where the needs of joint warfighting are making it extremely

apparent that continuing to execute our business operations as

independent entities—and those independent entities are the drivers of the siloed information—is no longer sustainable; that the

rapid requirements, the speed of decisionmaking necessary to meet

the warfighting challenges of the 21st century drive and create an

absolute need for us to execute effective business transformation.

So whether Tom and I are here in the long term or our replacements are here in the long term, that mission will trump all other

aspects of leadership. That is the sufficient condition for effective

business transformation, and the leadership is something we’re

also addressing. I think that is the missing ingredient that has not

been present in prior efforts that were more focused on systems

streamlining and financial management. The mission itself is completely in alignment with the need, and I’m confident given that

fact that we are going to be successful as we go forward.

Mr. PLATTS. The point of having these efforts hand in hand,

under one deputy secretary, are well stated in that ideal world.

Earlier I asked about a realistic approach versus an idealistic approach, and if Secretary England doesn’t mind spending 48 hours

a day on doing both, I agree. But the challenges, the way I see the

Department, the benefits of a CMO, is that it is not realistic because of what we’re demanding day to day in that warfighting side;

that general operation of the Department, that appropriate necessity, whoever is the Secretary, whoever is the Deputy Secretary,

their focus is what battles are we fighting today and do our troops

have what they need and the support. And, you know, it doesn’t

allow them to give the time that we need on the modernization effort. That is why in concept supporting the GAO’s position and legislation that has now been introduced, you know, we need to look

at the specifics maybe, but is that—trying to be realistic, it is just

not humanly possible, I don’t think, given the magnitude of the

challenge.

The fact that we have two of you sitting here, not one, kind of

makes the case that you’re partners in this from, you know, financial and the logistics and, working together makes the point that

it is, for one person, you know, it really isn’t going to work. And

so the—you know, the thought of a CMO is one that I think we

need to look at.

Mr. Kutz, I don’t know if GAO has taken a specific position with

the Senate bill.

Mr. KUTZ. Yes, we support the Senate bill. As you said, we believe that there are two jobs here and one has never been filled.

The one job of the Deputy Secretary is to do policy and military

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transformation. The other one, business transformation, always

takes a second seat. And you discussed the reality. The reality is

when the administration came in, they thought they were going to

be able to spend a lot of time on transformation, and then September 11th happened; and guess what?

Mr. PLATTS. If we were back in the nineties, we might have had

some conflicts, but not global engagements. We might have been

able to do it with the same commitment from an administration

that we have today. If we had that in a more peaceful time, one

person maybe could have overseen both.

Mr. KUTZ. Right. It is that constant turnover you mentioned. I’ve

been at this for 4 or 5 years, and there’s been about a dozen or

more hearings and we have probably had eight or nine sets of witnesses. And, you know, at some point in time Mr. England—and

he is a perfectly capable person, I think the Comptroller General

thinks he could probably do this job if it was full time for 7 or more

years. And the question is, will it be full time and will it be 7 or

more years? It does not appear to us that will be the case. And will

he be able to come to hearings like this and be held accountable

to Congress? Is he going to come to 10 or 12 hearings in a row and

represent the Department as their representative for business

transformation? I doubt it. I think he will have more important

things in his view.

We will see. We do support the legislation.

Mr. PLATTS. What are the specific criteria that you think are

most critical to a CMO position being effective and worth pursuing?

Mr. KUTZ. Certainly the executive level 2 position, No. 3 in the

Department, Deputy Secretary for Management, 7-year renewable

term. Someone with private sector and potentially government experience with successful transformation of large complex organizations. And so those are some of the kinds of things that are in this

legislation specifically and we certainly support that.

Mr. PLATTS. If I remember from your testimony, Mr. Modly, you

fulfill those requirements I think, right?

Mr. MODLY. I think.

Mr. PLATTS. The business and the government experience. And

in essence what you’re doing, but we want you to do at a higher

level and do it more full time.

Mr. MODLY. I’m not looking for a job right now. I’m perfectly

happy where I am, but would say that what is more important, I

believe, in the transformation is not whether we create a new position, it is important for senior level direction and continuity. I

agree with the objectives, and if the objectives can be cast properly

up front, and those clear requirements of what we are trying to accomplish can be cast properly up front, transformation falls to the

people who are three, four, five, six, seven levels below us, and so

we have to change the overall culture of the Department and we

have to seed the organization with people who have had experience

across broad industries and understand what it takes to get this

kind of thing done. And I’m not sure you solve that necessarily

with one person—with one person at the top.

Mr. KUTZ. Can I just address that culture thing just for a

minute? If you look at GAO, we have the Comptroller General for

15 years. We know he is not going away. And fortunately we’re

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confident he is doing a good job, but the transformation is going to

be a 15-year transformation. We know he is not going away. In the

Department of Defense and other Federal agencies, we know 2

years is your window; you know these people are going to turn over

constantly. And you know that nothing is going to last that long.

And that is really, if you look at some of the efforts over time, that

is the reality of what is going to happen.

Mr. PLATTS. I think that is where we are trying to jibe the two

statements, is that I agree that effort at that five or six levels

down—and you take Mr. Kutz’s comment if you are five or six levels down and, you know, it is your system, you know that you created it, you really don’t want to change it because you like it, it

works for you, even if it doesn’t work in a bigger sense, they think,

well, I can just sit this out. Well, you can spend some money but

you’re going to be gone, you know, the higher up, in a year or 2

years and, you know, we will still be here. And I think that is part

of that; it is a combination of your two statements. It is critical as

at those lower-level staff, but for them to take it seriously they

need to know that a person telling them to do it is going to be there

and going to hold them accountable long term, not just in the short

term. And I think that is where trying to mesh that

permanency——

Mr. PLATTS. The department transfers the responsibility from

Comptroller to AT&L, and that this is going to maybe allow you

to better support this transformation process. Can you expand why

that is going to be the case? Why in the current environment is

that going to work better?

Mr. MODLY. There were three primary reasons driving the shift

over. The first one was as you look across the Department, we understand this concept of where the transactions start; 2,000 of

those 4,000 systems are logistics-oriented systems. So it made

sense to shift it over for that reason.

The second reason was if you looked at the composition of the

Defense Business Systems Management Committee [DBSMC], the

second-ranking person on that committee is the Under Secretary

for Acquisition, Technology and Logistics [AT&L], not the Comptroller. The Under Secretary for AT&L is a level 2 political appointee, as is the Deputy Secretary of Defense. So the Deputy Secretary as the chair, it made sense for the vice chairman of that

committee to be AT&L, and therefore for the program to shift to

that higher level. So it was an elevation essentially of the program

management to a higher level in the Department consistent with

what the GAO has said.

The third reason is due to program management and control over

spending. We are taking these key priority initiatives and making

specific effort, as Paul mentioned, to designate BMMP as an ACAT

1 program. We’re going to centralize the funding for all those key

programs within the BMMP office, and that made sense to do that

under the AT&L because they have all the acquisition discipline.

They essentially write the acquisition discipline for the Department.

I don’t know if Paul wants to comment on that any more.

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Mr. BRINKLEY. No, just to reinforce. And I think you asked the

question earlier about the two of us being here together, and Tom

alluded to the fact that we seem to do road shows frequently.

There are two elements to this. The program and the accountability for the execution of the program is within AT&L, reporting

to myself. So there is no lack of clarity about accountability now

for execution and success. But the cultural change we’re trying to

drive—and again if there were a CMO at the top of the Department, I’m sure he would potentially add to cultural change, or not.

But Tom and I and our subsidiary organizations are very focused

on driving home again the fact that financial management discipline is complementary to clean, streamlined, business processes.

It is not part of the awareness of the Department. It is not part

of its culture.

To the discussion earlier, the Department doesn’t deliver quarterly financial results, and the quality of those quarterly financial

results are not requisite for its success or failure in its core mission. So over those 50 years of systems being created, there is no

embedded awareness that a financial focus is or is not complementary to executing our primary mission in terms of delivering material to warfighters.

So we will continue to drive this, you know, call upon each other

to reinforce that message. But the accountability for the program

is here, and for the reasons he cited.

Mr. PLATTS. And, you know, my referencing your both being here

is a positive. The fact that you are here, I think, is an example of

what I see as progress, of moving forward, and that we actually

start getting to implementation. And, you know, we have been trying to identify the problems in the systems and what is out there,

but that you actually now are moving forward, and your partnership in essence is about action, and that we end up improving the

systems ultimately for the benefit of the warfighter out there.

Let me ask you about a specific case that was highlighted as one

of the examples by GAO. Mr. Towns mentioned the airline tickets

as an example of the waste of dollars. The one specific I would like

to focus on is to what the current status is, is more really more

about the quality of life and how we support these courageous

Americans. And it deals with the injured Reserve component soldiers who, apparently because of glitches in our tracking of our

management personnel systems, have routinely been bumped off of

full-time Active Duty status, which makes them ineligible for their

continuing Medicare.

And the one example was, I think, a special ops soldier injured

in Afghanistan, who, over a 12-month period, was knocked out of

his Active Duty status numerous times, totaling $12,000 in lost pay

and delays in getting medical treatment for him and his family.

What has been done with that specific focus of injured soldiers

and the fact that we do right by them?

Mr. MODLY. First of all, those types of incidents are—as a former

Active Duty military member and I have friends and relatives who

are in that theater, it is embarrassing. And we try everything we

can to keep that from happening.

What happened in that particular instance and those instances

in general was that as Reserve units came back from the theater

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and they had injured soldiers, soldiers within hospitals, they deactivated the unit, which automatically caused the stop in pay, and

they didn’t account for the soldiers who were in the hospitals.

We are now actively monitoring all the soldiers in all the hospitals to ensure that they have an advocate to ensure that their

pay is taken care of, and my understanding is that we have had

very, very few, in the past several months, instances of any problems with pay with regard to injured soldiers.

Mr. PLATTS. I know that is the case because it certainly is embarrassing. It is maybe more so; it is demoralizing and just unacceptable, given the courage of these men and women. And one of

the finest privileges I have had is to visit wounded at Landstuhl,

as well as in theater in Iraq and Afghanistan, and if there is a

group of Americans who we need to do right by, it is to they and

their families.

I also thank you for your own service. I’m not sure who else on

the panel were former military, but we appreciate your service and

we’re blessed because of you and others who have and are wearing

the uniform.

We touched on the broad areas that I hoped to address here

today. One of the challenges for our committee and for me as chairman, is I’m asked in my district ‘‘well, what exactly does your committee do and how do you do it?’’ It is more of an oversight committee. Our effort is to try to keep the focus on issues and keep everyone’s attention and keep the eye on the ball and hopefully advance

that ball down the field.

That is what today’s hearing is again about, specifically related

to DOD, with the systems, with GAO and with the efforts of you

two and your colleagues at the Department, that we advance the

ball down the field, specifically. And maybe again, most importantly for DOD, because of the importance of your mission to the

defense of our Nation, and in that it is about doing right by those

men and women who are out there defending our Nation. We’ll continue to work with each of you, both at the GAO and at the Department.

One of the things I want to offer is that I’m not here to play

‘‘gotcha,’’ and, when we find things that are wrong, we want to

make sure those errors are corrected and also learned from. It

sounds like, as in the case of the injured, that there is a new approach being taken to ensure that we learn from that mistake or

mistakes, to be part of this team of all of us working together. Because it is just so evident that if we have success in this effort—

and it is not exciting necessarily, except for those of us who like

to balance their checkbooks, it is exciting; to most, maybe it is not.

But it certainly is critical to the operation of the Federal Government and specifically to the defense of our country because when

we are debating whether we can afford this new military equipment, you know, this new technology, or the costs associated in

how we compensate and provide for our men and women and their

families, every dollar we save by more efficient operation is dollars

that are then available for better equipment, for better pay, better

housing, whatever it may be, a quality of life.

This certainly is an area that we cannot let up on and we must

succeed. And if it takes us 2 years or 5 years in the end, we just

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need to do it. I think the approach you’re taking is—I wrote down

at one point when you talked about it, and I forget, Mr. Modly or

Mr. Brinkley, which one of you said it, you’re not really interested

in how many systems, whether you have 2,001, but are you achieving the necessary improvements, are you doing the job? In essence

an outcome-based approach.

Although I’m still a bit worried if we’re duplicating too many systems, but outcomes is what we need to be about and how we

achieve those outcomes. I think you’re on the right track in your

efforts and I wish you great success.

I hope you will also turn to GAO because, Mr. Kutz and Mr. Hite

and others, they have a history, you know, a wealth of knowledge

that I think would benefit each of you in your new positions as you

go forward; and what maybe has been tried in the past, that they

can share with you, and again you can have an opportunity to

learn from the errors of the past.

So we’ll keep the record open for 2 weeks for any additional information, such as specifically any consequences from the violations

of the law in the past. Again, I thank each of our witnesses, thank

the staff on both sides for all the leg work, and this hearing stands

adjourned.

[Whereupon, at 3:30 p.m., the subcommittee was adjourned.]

[Additional information submitted for the hearing record follows:]

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