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STRENGTHENING OVERSIGHT OF DOD BUSINESS

SYSTEMS MODERNIZATION

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON NATIONAL SECURITY,

EMERGING THREATS, AND INTERNATIONAL

RELATIONS

AND THE

SUBCOMMITTEE ON TECHNOLOGY, INFORMATION

POLICY, INTERGOVERNMENTAL RELATIONS AND

THE CENSUS

OF THE

COMMITTEE ON GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

MARCH 31, 2003

Serial No. 108–44

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

JOHN SULLIVAN, Oklahoma

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

WILLIAM J. JANKLOW, South Dakota

MARSHA BLACKBURN, Tennessee

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

JOHN F. TIERNEY, Massachusetts

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

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

CHRIS BELL, Texas

———

BERNARD SANDERS, Vermont

(Independent)

PETER SIRH, Staff Director

MELISSA WOJCIAK, Deputy Staff Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHILIP M. SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON NATIONAL SECURITY, EMERGING THREATS AND INTERNATIONAL

RELATIONS

CHRISTOPHER SHAYS, Connecticut, Chairman

MICHAEL R. TURNER, Ohio

DAN BURTON, Indiana

STEVEN C. LATOURETTE, Ohio

RON LEWIS, Kentucky

TODD RUSSELL PLATTS, Pennsylvania

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

TIM MURPHY, Pennsylvania

WILLIAM J. JANKLOW, South Dakota

DENNIS J. KUCINICH, Ohio

TOM LANTOS, California

BERNARD SANDERS, Vermont

STEPHEN F. LYNCH, Massachusetts

CAROLYN B. MALONEY, New York

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

CHRIS BELL, Texas

JOHN F. TIERNEY, Massachusetts

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

LAWRENCE J. HALLORAN, Staff Director and Counsel

THOMAS COSTA, Professional Staff Member

ROBERT A. BRIGGS, Clerk

DAVID MCMILLEN, Minority Professional Staff Member

(III)

SUBCOMMITTEE ON TECHNOLOGY, INFORMATION POLICY, INTERGOVERNMENTAL

RELATIONS AND THE CENSUS

ADAM H. PUTNAM, Florida, Chairman

CANDICE S. MILLER, Michigan

DOUG OSE, California

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

BOB DIX, Staff Director

CHIP WALKER, Professional Staff Member

URSULA WOJCIECHOWSKI, Clerk

DAVID MCMILLEN, Minority Professional Staff Member

(V)

C O N T E N T S

Page

Hearing held on March 31, 2003 ............................................................................ 1

Statement of:

Boutelle, JoAnn, Director Deputy Chief Financial Officer, Department

of Defense; John R. Landon, Principal Director, Deputy Assistant Secretary of Defense, Command, Control, Communications, and Intelligence Surveillance, Reconnaissance, Space and IT Programs; and

Thomas Bloom, Director, Defense Finance and Accounting Service

[DFAS], Department of Defense .................................................................. 34

Hite, Randolph, Director, Information Technology Architecture and Systems Issues, General Accounting Office, accompanied by Gregory Kutz,

Director, Financial Management and Assurance, General Accounting

Office; and Darby Smith, Assistant Director, Financial Management

and Assurance, General Accounting Office ................................................. 5

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

Bloom, Thomas, Director, Defense Finance and Accounting Service

[DFAS], Department of Defense, prepared statement of ........................... 51

Boutelle, JoAnn, Director Deputy Chief Financial Officer, Department

of Defense, prepared statement of ............................................................... 36

Hite, Randolph, Director, Information Technology Architecture and Systems Issues, General Accounting Office, prepared statement of .............. 8

Landon, John R., Principal Director, Deputy Assistant Secretary of Defense, Command, Control, Communications, and Intelligence Surveillance, Reconnaissance, Space and IT Programs, prepared statement

of ..................................................................................................................... 43

Putnam, Hon. Adam H., a Representative in Congress from the State

of Florida, prepared statement of ................................................................ 68

Shays, Hon. Christopher, a Representative in Congress from the State

of Connecticut, prepared statement of ........................................................ 3

(1)

STRENGTHENING OVERSIGHT OF DOD

BUSINESS SYSTEMS MODERNIZATION

MONDAY, MARCH 31, 2003

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON NATIONAL SECURITY, EMERGING

THREATS AND INTERNATIONAL RELATIONS, JOINT WITH

THE SUBCOMMITTEE ON TECHNOLOGY, INFORMATION

POLICY, INTERGOVERNMENTAL RELATIONS AND THE

CENSUS, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittees met, pursuant to notice, at 1 p.m., in room

2154, Rayburn House Office Building, Hon. Christopher Shays

(chairman of the Subcommittee on National Security, Emerging

Threats and International Relations) presiding.

Present: Representatives Shays, Turner, Putnam, Duncan,

Kucinich and Ruppersberger.

Staff present from the Subcommittee on National Security,

Emerging Threats and International Relations: Lawrence Halloran,

staff director and counsel; J. Vincent Chase, chief investigator;

Thomas Costa, professional staff member; Robert A. Briggs, clerk;

David McMillen, minority professional staff member; Earley Green,

minority chief clerk; and Teresa Coufal, minority assistant clerk.

Staff present from the Subcommittee on Technology, Information

Policy, Intergovernmental Relations and Census: Bob Dix, staff director; John Hambel, senior counsel; Chip Walker, professional

staff member; Ursula Wojciechowski, clerk; and David McMillen,

minority professional staff member.

Mr. SHAYS. A quorum being present, this joint hearing of the

Subcommittee on National Security, Emerging Threats and International Relations and the Subcommittee on Technology, Information Policy, Intergovernmental Relations and the Census entitled,

‘‘Strengthening Oversight of DOD Business Systems Modernization,’’ is called to order.

Central elements of the President’s management agenda call for

improved financial performance, more effective use of information

technology [IT], and closer integration of budget and performance

data by Federal departments and agencies. Today, the General Accounting Office [GAO], concludes the Department of Defense

[DOD], has made little progress in imposing that agenda on a

sprawling, inefficient reform-resistent financial management system.

Last June, DOD witnesses promised a sustained, far-reaching effort to reform and transform the Pentagon financial management

into a precision tool of program formulation, program execution

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and detailed accountability. To measure the depth of that commitment, we asked GAO to follow the fate of four specific business systems under development at DOD, focusing on IT investment management and oversight.

The results of their investigation, released this morning, describe

ambitious plans but limited progress at DOD toward effective business system modernization. An area designated by GAO as possessing a high risk of fraud, waste and abuse since 1995, DOD financial systems still fail to yield certifiable audit results or useful

management information. Reform efforts threaten to compound the

problem by adding yet more complexity to an already preposterous

matrix of incompatible systems. This year, the Department requested $18 billion to maintain, operate and improve business data systems. But GAO finds that investment at risk of being misspent, feeding a dysfunctional status

quo. Hundreds of millions of dollars have already been committed

to projects without the economic justification and close management oversight required by law, administrative guidance and commercial best practices. One of the systems GAO studied was terminated earlier this year after 7 years of development. That failed effort cost $126 million.

The business of the Department of Defense is to train, equip and

deploy military forces to secure vital national interests. That critical enterprise cannot be planned or executed successfully on paperbased, error-prone management systems. The citizen-soldiers we

call upon today and in the future to conduct the Nation’s most dangerous business deserve to be supported by 21st century business

systems as smart as the weapons they wield.

We appreciate the continued assistance, and the persistence, of

the GAO in their ongoing oversight of DOD business system modernization. We welcome all our witnesses today and look forward

to their testimony. We know that all our witnesses are trying to do

the best for our country, and we all are going to be working together to see that happens.

At this time, the Chair would just recognize and call on the vice

chairman of the committee, Mr. Turner from Ohio.

[The prepared statement of Hon. Christopher Shays follows:]

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Mr. TURNER. Thank you, Mr. Chairman. I appreciate your efforts

in bringing forward these issue of efficiency and management and,

of course, the issue of costs.

One of the issues that I am also interested in is the process of

making certain that we are able to obtain the information processing systems that we need and to what extent our acquisition systems limit that ability.

I was recently at an event, a panel discussion where NCR was

leading a discussion of data mining. They were talking about, in

the private sector, that the efforts to acquire information technologies begin with a series of questions that they need to have answered and then in the private sector looking for solutions, rather

than trying to dictate a solution and then seeing if it provides you

with the answers. I am interested in that it seems that many times

when we are—when government is pursuing IT solutions that processes, not just fraud and abuse, might contribute to some of the inefficiencies and the waste; and I will look forward to your discussion on that aspect of this issue.

Mr. SHAYS. I thank the gentleman.

Note for the record this hearing is a joint committee, and Mr.

Putnam will be here when his plane lands at 2. Then he will be

taking over part of this hearing.

To get some housekeeping done, I ask unanimous consent that

all members of the subcommittee be permitted to place an opening

statement in the record and that the record remain open for 3 days

for that purpose. Without objection, so ordered.

I ask further unanimous consent that all witnesses be permitted

to include their written statements in the record; and without objection, so ordered.

At this time, the Chair would recognize the participants on our

first panel. They are Mr. Randolph Hite, Director, Information

Technology Architecture and Systems Issues, General Accounting

Office; Mr. Gregory Kutz, the Director of Financial Management

and Assurance, General Accounting Office; and Mr. Darby Smith,

the Assistant Director of Financial Management and Assurance,

General Accounting Office. And it’s one testimony, I think, from

Mr. Hite—yes—backed up by two experts on either side.

OK. What we do is we do the 5 minutes, and then we roll it over

another 5 minutes. So it is important that you put your testimony

in the record vocally as well.

So happy to have you here. Happy to have all three of you here.

STATEMENT OF RANDOLPH HITE, DIRECTOR, INFORMATION

TECHNOLOGY ARCHITECTURE AND SYSTEMS ISSUES, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY GREGORY

KUTZ, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, GENERAL ACCOUNTING OFFICE; AND DARBY SMITH,

ASSISTANT DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, GENERAL ACCOUNTING OFFICE

Mr. HITE. Thank you, Chairman Shays, Vice Chairman Turner,

for the opportunity to testify on DOD’s business systems modernization, an area that we first designated as high risk.

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Mr. SHAYS. You know what? I have never done this before to my

knowledge. I let you start without swearing you in. So everything

you said, we have to start all over again.

If you would all stand and raise your right hands, please.

[Witnesses sworn.]

Mr. SHAYS. Note for the record our witnesses have said yes to

that oath.

I would say that, had I let you get away with that, you would

have been in the very exclusive company of Senator Byrd, because

he is the only one I have ever chickened out and not—I did chicken

out. I fess up, and you can put it on the record.

OK, why don’t you start again, Mr. Hite.

Mr. HITE. Thank you, chairman, vice chairman. We are happy to

be here to testify on business systems modernization at the Department of Defense, an area that we first designated as high risk in

1995 and we continue to do so today.

With me today is Greg Kutz, as you mentioned, who is GAO’s Director of Financial Management Issues at the Department of Defense, and Darby Smith, who managed our evaluation of the four

DFAS systems that are also the subject of this hearing and are the

subject of this report being released today at your request, Chairman Shays.

As requested, I will summarize my written statement by making

three points: Point one, the need for DOD to modernize is undeniable. DOD’s existing systems environment is the by-product of

many years of unrelated, stove-piped initiatives, each pursued to

support nonstandard and duplicative business functions. The result

is represented on the display board. Namely, that shows that there

are 1,731 existing and new system investments spanning 18 functional areas in the Department.

How much is being spent on this proliferation of systems? Our

analysis of DOD’s reported IT budget for fiscal year 2003 pegs the

number at about $18 billion. Clearly, such a situation is, according

to the old saying, no way to run a railroad; and one can speculate

that if DOD was a private sector corporation its systems would be

driving it to chapter 11.

Restated, DOD does not currently do business the way business

does business. You know this, we know this, and, most importantly, DOD knows this, and its leadership is not only committed

to changing this, but I can attest to the fact that there are a number of men and women at DOD working hard to do so.

Nevertheless, commitment, hard work and even $18 billion a

year are not a complete recipe for successful systems modernization. Which brings me to point two of our testimony, namely that

DOD does not currently have the means in place to achieve the desired end, that end being effectively investing in modern systems.

Why? Because it has yet to implement the kind of modernization

management controls advocated in legislation and Federal guidance and grounded in proven commercial best practice.

Three examples of these controls are investing in new and existing systems within the context of a DOD-wide modernization blueprint commonly called an enterprise architecture; investing in

these systems in an incremental or modular fashion and only when

they can be justified via a compelling business case—that was the

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second example—and the third example is overseeing these investments to insure that they are delivering promised capabilities and

benefits on time and within budget.

Chairman Shays, at your subcommittee hearing last year on

DOD’s modernization program, we highlighted and the Department

acknowledged these weaknesses. Moreover, it committed to addressing each of them. Since then, it has begun a number of efforts

to do so. For example, it plans to issue the first version of its enterprise architecture in 2 months, and it is creating a new investment

governance and oversight approach. We view these efforts as positive systems, and we would note the DOD leadership has constructively engaged with us on both.

Having said this, the fact remains that, as of today, the above- cited weaknesses still exist. As a result, the $18 billion that DOD

plans to spend in fiscal year 2003 remains at risk. To illustrate,

this report shows that DOD’s oversight of four key projects has

been limited, resulting in hundreds of millions of dollars being

spent without adequate economic justification and without action to

address material shortfalls in meeting expectations. In fact, Mr.

Chairman, as you mentioned, during the course of our working

DOD terminated one after spending $126 million in 7 years of effort.

So what needs to be done? This is point three of our statement.

Over the last 2 years, we have made a series of recommendations

that collectively provide a framework for modernization management improvement. In short, they define a series of steps aimed at

developing and effectively implementing a modernization blueprint

in a way that should minimize risk and maximize results. Moreover, they define categories of system projects that DOD should

confine its IT spending to, pending correction of its weaknesses.

In summary, the state of DOD’s business systems environment

makes a compelling argument for modernization, but the mammoth

cost and the enormous importance of organizations argue even

more about making absolutely sure that DOD does the right thing

and it does it the right way. To achieve this, to be right, if you will,

DOD should fully implement our recommendations and insure that

it adheres to relevant Federal guidance and recognized best practices. Anything less will continue to put the modernization at high

risk of failure, which in turn will force the Department to continue

to rely on existing systems that do not support effective and efficient business operations and do not provide timely and reliable information for decisionmaking.

In closing, we would like to commend the subcommittee for their

oversight of DOD’s efforts.

This concludes my oral summary. I’d be happy to answer any

questions that you have at this time.

Mr. TURNER [presiding]. Thank you, Mr. Hite.

[The prepared statement of Mr. Hite follows:]

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Mr. TURNER. Mr. Chairman.

Mr. SHAYS. When I see a number that says the Department fiscal year 2004 IT budgetary request is approximately $28 billion, that

seems like an extraordinary sum; and it seems like a misprint. Tell

me what 28—first, is the $28 billion accurate; and, second, fill it

in a little bit. Explain to me where $28 billion goes.

Mr. HITE. Yes, sir. Is the $28 billion accurate? I would submit

it’s DOD’s number, the $28 billion. I would submit that’s probably

understated. That is not a number, a top-down derived number.

That’s a number that’s derived through data calls out to the multiple components within the Department to try and put together a

collective number for IT spending in the Department.

Those IT dollars are embedded in multiple appropriation accounts for a wide range of DOD component organizations across the

Department. So $28 billion is DOD’s number.

Then what we did through our analysis was try to determine, as

you asked last year, Mr. Chairman, as to what is that money going

for, to identify what portion of that is going toward business systems modernization as opposed to command and control systems,

for example, or embedded systems and weapons systems. And

that’s how our analysis allowed us to derive the $18 billion number.

Mr. SHAYS. $18 billion is for business systems?

Mr. HITE. Yes, sir.

Mr. SHAYS. OK. And the balance, whatever that is, is for weapons systems and so on.

Mr. HITE. Yes, sir.

Mr. SHAYS. OK. Then let’s just take the $18 billion. Over a near- ly $400 billion budget, is that about what you would see in a larger

organization, percentagewise? If you don’t know, I don’t want you

to tell me and give me an answer. If you don’t know, then I’d like

you to check. But do you have a sense of it or do you——

Mr. HITE. I could research that, but I don’t believe there is a

standard out there in the private sector or in the public sector for

IT budgets.

Mr. SHAYS. I can’t believe there wouldn’t be. I mean, it would

seem to me you would always want to kind of be able to compare

yourself to others. If I was—since it’s such a large cost, I would

want to know, if I were running a business. I mean, how does it

compare to our competitors?

Mr. KUTZ. It’s hard to imagine in a competitive environment paying for systems that are duplicative, that store the same data multiple times, etc., would be economical or be allowed to remain and

a business to continue; and I think that’s pretty safe to say. But

we don’t have empirical data for that.

Mr. SHAYS. From that I could make an assumption, since they

are duplicative and so on, that we obviously are adding significant

costs. Not only do they not necessarily work well, but Mr. Kutz’s—

the implication I get from your answer is that it would likely be

more because we are not spending it well.

Mr. KUTZ. There are significant inefficiencies, and if you take the $18 billion that’s almost $50 million a day being spent to operate

these systems and to maintain and modernize them. So $50 million

a day is a substantial amount of money.

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Mr. HITE. Another variable is keep in mind there is when I said

there’s not a standard, it’s because it depends on the state of the

IT environment of the given enterprise that you would be looking

at. If an enterprise that already has in place modern, effective and

efficient systems, their costs would probably be much lower. If it

is an IRS, for example, who’s in the process of modernizing their

systems and they have on the order of an annual budget of about

$9 billion, they spend about—between operation and maintenance

of existing systems and modernized systems, they spend closer to

$2 billion on IT. So that’s a huge percentage there.

So it is going to depend on the nature of the organization, the

operations it performs, the extent to which it depends on IT and

then the state of those IT assets at that particular point in time.

Mr. SHAYS. Can you put a number on the amount of wasted dollars, the $18 billion? In other words, you can demonstrate that the

programs aren’t working as well as they could, aren’t up to date

and so on, they are not integrated, they are not coordinated and

all of those things. But can you put a number on the amount of

dollars you think are being wasted?

Mr. HITE. No, sir, I can’t put a figure on that.

Mr. KUTZ. Mr. Chairman, Secretary Rumsfeld has said the Department could save up to 5 percent of its budget through effectively modernizing. So if you take 5 percent of roughly $400 billion,

you’re talking about $20 billion. I think that this would be a part

of that $20 billion, certainly probably billions of dollars. If you look

at the environment today of over 2,000 systems and where they

hopefully will be if we are successful with this effort, which would

be maybe several hundred systems, you could see at the end of the

day substantial multibillions of dollars of savings. This would seem

to be a large part of what Secretary Rumsfeld is talking about in

the savings for modernization.

Mr. SHAYS. Right. But I can basically make an inference that you

have waste by a system that doesn’t work well, the waste connected to that system; and then you have a waste because systems

are supposed to help you allocate other resources better. So we’re

not managing other resources as well as we could. So it’s kind of

a twofer here. If we could get a better system, it should be more

cost effective. It should also help us make other parts of DOD be

more cost effective. I mean, is that a fair assumption?

Mr. KUTZ. Absolutely. You’re buying items that you don’t need.

And you may recall from our JSLIST hearing last year that DOD

was selling items actually needed, for pennies on the dollar on the

Internet; at the same time DOD was buying brand new chem/bio

suits. So you’re absolutely right.

In addition to the inherent inefficiency of the systems spending,

this does cause a whole other series of other inefficiencies in the

Department.

Mr. SHAYS. I also, besides inferring things, make some general

assumptions. One is that we have very talented people at DOD. We

have very dedicated people at DOD. We have, you know, people

who want to do right by their government. But it’s such a big government that it’s hard to identify probably who’s doing some good

things and who’s not. But I guess what I want to know is if you

were to—where do you think the major problems lie? You’ve said

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it, but say it for the testimony. Not documenting the problems but

documenting what are some of the major solutions. Therefore, I can

figure out what the problems are.

Mr. KUTZ. One of them would be the sustained leadership that

I think we’ve talked about in other hearings of yours. I believe

Comptroller General Walker talked about a concept of a chief management officer that you would bring in that would have significant

qualifications in successfully doing this that you would bring in potentially for a term of, let’s say, 5 to 7 years that would be renewable that would provide you the sustained leadership. The average

tenure of the political appointees at DOD—and this might be a little bit dated information—is about 1.7 years.

Mr. SHAYS. And the political folks are the ones ultimately calling

the shots on this.

Mr. KUTZ. Yes.

So that is one issue. I mean, you have a myriad of other issues.

Let’s use the incentive system that we have right now. The $18 billion we’re talking about, as you said, we’re spending that or we

have, for example, the DPPS system which will not result in any

measurable benefits for the government after $126 million. What’s

happening next year? They’re going to get more money. I mean, is

that the right incentive system for spending that much money and

not showing measurable progress? But that is, in fact, the incentive

system we have today from a monetary perspective.

So there’s an issue of incentives and accountability for how the

money’s being spent.

Mr. SHAYS. I’m seeing a green light that keeps going on green.

Did it get flipped over? OK. Thanks.

What would a chief manager, chief financial manager or chief—

how do we define that?

Mr. KUTZ. It could be a second deputy. It could be a chief management officer. We talk about this in our——

Mr. SHAYS. What would someone in the private sector be paid?

Mr. KUTZ. For that? Millions of dollars a year. It would be someone similar to Charles Rossotti, who was brought into the Internal

Revenue Service. He had a past management history. He was not

a tax attorney, which was the history of leadership at IRS before.

He was brought in for a 5-year term, and he had a set of credentials from the private sector.

Mr. SHAYS. But he took a major salary reduction in joining.

Mr. KUTZ. Substantial. Probably 90 or 95 percent pay cut, yes.

Mr. SHAYS. So this person needs to, obviously, have qualifications. This person needs to have some tenure and, ideally, you

know, paid fairly well but being given extensive authority. In other

words, when he asks are—or she asks for this information, they

would—the rest of the Department would have to know they need

to be responsive.

Mr. KUTZ. They would have to have the clout to make things

happen not only within the Office of the Secretary but within the

services.

Mr. SHAYS. Thanks.

Mr. Chairman, I might like to come back afterwards in a second

round, but I am done for this one.

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Mr. TURNER. In listening to your testimony concerning oversight

and in some of the examples that you discussed, it seems like there

are problems both in the inception and how projects are defined

and approved in the design process in what the requirements are

and how that process changes while the project is ongoing. Then,

also, implementation, buying, making certain that it’s used and

that the organization is going to be a partner with the organization

that is putting the system in place. That pretty much is soup to

nuts for the whole thing. Is there a process part that’s working or

is there one of these that you could identify that you think is more

a problem than the others?

Mr. HITE. Congressman Turner, my experience in working at the

Department of Defense unfortunately points to the fact that there

are a number of things that are not being done correctly on a number of fronts; and, to be honest with you, I can’t point to one where

historically it has been done correctly. There are probably pockets

of that within the Department.

But the kind of systematic change that we’re talking about and

that the Department is trying to pursue now where and how they

approach modernization provides, in my recollection, for the first

time introducing this concept of having one blueprint that everyone

builds to.

The concept of when you invest in one of these projects within

the context of that blueprint you insure that it is justified on the

basis of cost benefit and risks, that you take these large systems

that involve doing many things over many years and spending hundreds of millions of dollars, that you break those into incremental

pieces and you invest in those incremental parts and insure that

they are delivering value commensurate with cost over their lifecycle, that you employ rigorous and disciplined acquisition practices in how you engage with the contractor in delivering those and

insuring that when they are implemented they are working properly, these are things that in some respects have been embodied in

DOD policy over the years, in some respects have not.

The real issue in my experience at the Department is in the zeal

to try and do the right thing. Everyone over there who’s in charge

of one of these projects is trying to do the right thing in the—and

that zeal and the pressure that’s brought upon them to meet milestones and that being the No. 1 driver, there is a tendency to sidestep some of the rigor and discipline that you traditionally see in

successful programs in the haste to meet milestones; and in my

mind that’s a recipe for failure.

I do see now, and I’d have to say for the first time in the 20-some

years that I have been doing work there, a recognition and an acknowledgment that can’t continue and we have to change the way

we define what we are going to buy, how we are going to buy it,

how we are going to implement it, how we are going to test it and

how we are going to make sure that it’s successful.

Mr. TURNER. In my opening statement, one of the things that I

mentioned is my an interest in the acquisition process itself and

how it might lend to the outcomes that you’re seeing. In the private

sector—and you mention in your presentation the process that the

private sector goes through—the issue of oversight is, of course, one

that is handled differently than it might be in the government.

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But also the issue of acquisition, what you’re going to buy, working in partnership with the company that’s providing you the system and defining the solution instead of providing a specification

in which you then look to multiple users to try to present a solution when it may not exactly be the one that you need for the outcome you’re looking for, what are your thoughts on the government’s acquisition process of IT versus the private sector and does

that in and of itself inherently cause a problem in designing these

systems?

Mr. HITE. I agree 100 percent. That causes a problem in acquiring these systems.

Traditionally, and to a great extent today, in the Federal Government the approach to acquiring systems now—and they’re commercial-based, component-based systems now. They are not homegrown, one-of-a-kind, unique systems anymore where you’re writing

millions of lines of code. You’re building systems from commercially

available components, hardware and software; and the approach to

doing that successfully is far different than the traditional approach has been to customized solutions.

My experience across the Federal Government shows that, more

times than not, those private-sector practices for acquiring commercial components systems where you don’t have requirements drive

the solution. You tradeoff requirements against what’s available in

the commercial sector. So your decisions are based on not just what

I need but what is available. Those kinds of practices are not employed, to a large extent.

I can say, in talking to the leadership on this modernization program, that’s what they want to get to. They want to have the commercial environment drive their solutions so they’re not introducing

customized solutions as they have in the past. That’s the approach

they’re taking with the architecture development, and it is my understanding that’s the approach they’re going to be taking with

prototyping system solutions as they move forward with implementing the architecture. Those are all proper courses of action in

our mind.

Mr. TURNER. In the private sector, one of the other issues that

is prevalent that you indicated here is a problem for DOD is the

concept of buy-in of those who have to utilize the system and indicating one of the systems that had been abandoned was—had competing systems that people were unwilling or departments were unwilling to abandon. Is the modernization program—is the leadership going to have the authority necessary to bring those various

departments and programs together and then also the authority to

assist in the buy-in process?

Mr. HITE. Right now, in my mind, no, they don’t have the authority to do that. We’ve got recommendations on the books trying to

create that kind of authority to insure that happens. I mean, your

question is right on target. This is not an afterthought when you’re

introducing commercial systems. You’ve got to think about how are

we going to introduce the change that’s embedded in those systems.

You have to think about those kind of issues from the outset, and

you have to position your organization to accept that level of

change.

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What I can say is, based on my discussions with the individuals

who are leading this modernization program, is that they recognize

that, as of yet, at this stage of the modernization, I haven’t seen

on-the-ground processes to provide for that. But I wouldn’t necessarily expect to yet.

Mr. TURNER. Mr. Chairman, do you have additional questions?

Mr. SHAYS. Yes, thank you.

Just sort this out for me, just briefly. The reason why you don’t

see us moving forward with a manager not co-continuous with the

President is that just a political disagreement that we’re having

with the administration? No one’s picking it up? Have you had any

response from DOD whether they like the idea, etc., follow—tell me

how to sort that one out.

Mr. KUTZ. You don’t have a chief management officer concept.

Actually, Dave Walker, I believe, the Comptroller General, introduced that to one of the business councils over at DOD; and they

did embrace that as one option to move forward. I don’t know

where it’s gone since then. So this has been introduced to the Secretary and some of the senior business councils over there and was

received well.

Mr. SHAYS. How long ago?

Mr. KUTZ. Several months ago.

Mr. SHAYS. OK. When you speak to the higher-ups in DOD about

your report, walk me through their reaction on your presentation,

the waste.

Mr. KUTZ. With respect to the management of these four systems, I think that there’s a recognition that these are for the DFAS

system. But there is a recognition that the project management investment, management controls necessary to bring these kinds of

projects home within cost schedule and performance targets are not

there right now; and there’s a recognition that they need to be

there for them to successfully modernize. You can build a blueprint

for modernization, but if you can’t actually build the projects out

you’re not going to get there. So there’s a recognition that this is

a DOD wide and not a DFAS issue.

Mr. SHAYS. Has GAO had much interaction with the appropriations subcommittee of DOD on this issue?

Mr. HITE. Not on this particular issue, no.

Mr. SHAYS. OK. What I would love to do is set up a meeting with

the staff of that subcommittee with all of you and see if we can

kind of gauge their interest in this issue.

Mr. Chairman, I’m all set.

Mr. TURNER. Chairman Shays has indicated that in the past he’s

provided opportunities for staff that are present who have also

worked on these issues to ask questions that might be helpful for—

both for the purposes of the hearing and the work that they are

doing. So at this time if there are staff members who have an interest in asking questions, and we can begin to my left. Mr. Chase.

Mr. CHASE. Your report makes a very strong point regarding

oversight of the four business systems that you analyzed.

First of all, a general question. What’s preventing meaningful

project oversight at DOD?

Mr. HITE. The short answer is, in my mind nothing’s preventing

meaningful oversight. I mean, that’s a conscious decision as to

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whether you want to exercise it or not. In the case of these four

projects, there was nothing to preclude it, at least ostensibly nothing to preclude it.

One thing that could preclude it is nobody holds you accountable

for your oversight whether you do it or whether you don’t do it.

And, you know, people are like, as any human being, they’re going

to react to what they are measured and graded on. But the bottom

line is there’s nothing to preclude it.

Mr. CHASE. How would you hold the Department accountable

then?

Mr. HITE. Well, you would—I mean, individuals within an organization are assigned accountability for discharging this kind of

oversight; and they need to be accountable up their chain of command for executing their responsibilities. If nobody pays any attention to it, the tendency is it doesn’t get done.

Mr. CHASE. Could you describe for us the kind of oversight that

should have taken place for these four systems by both the Controllers Office and the DCI?

Mr. HITE. Yes. In responding to that, one of the things I’d like

to lay out is the way DOD’s acquisition process works, which is you

have major milestones for acquiring or delivering huge, monolithic

systems. Their approach is not to break it into incremental

deliverables and to measure progress against those deliverables.

So in terms of how it should be done, any of these large systems,

you break it into its incremental parts, its modular parts. You

measure, you define what you’re going to provide on the basis of

those increments, the—what it is going to cost you, what value are

you going to derive for it, what kind of capabilities are going to be

provided, and you measure the delivery and the satisfaction of

those incremental parts, and you have milestones associated with

each one so you don’t have to learn after 2 years of a major milestone not presenting itself that things aren’t on track. That’s the

way a successful organization does it.

Now DOD’s acquisition process historically has not provided for

that. It provides for oversight at major milestones. What happens

is years can pass in between those major milestones, and there’s

a whole lot of activity and a whole lot of money that can be spent

in a year’s worth of time.

Mr. CHASE. OK. Thank you, Mr. Chairman.

Mr. SHAYS. I next understand John Hambel, counsel for the Subcommittee on Technology, Information Policy, Intergovernmental

Relations and Census will be asking questions.

Mr. HAMBEL. Thank you, Mr. Chairman.

Mr. Kutz, last week you testified before the Subcommittee on

Technology at its hearing on data mining; and at that time you testified that the poor quality of Federal Government systems is a significant impediment to making full use of tools such as data mining. Now we’re hearing at DOD we have over 2,000 business systems, and I was wondering how this impacts your ability to use

data mining techniques, audit and investigate various programs.

Mr. KUTZ. I think the first thing that you’d have to look at with

all these systems is identifying the systems that actually had the

information in them from which you might want to data mine. You

have for example, in the vendor pay area up to 18 systems that

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have information or transaction-based information on them related

to vendor payments. With respect to personnel and logistics, you’ve

got hundreds of systems.

First of all, one challenge would be identifying which systems

have the information.

A second challenge would be reconciliation. When you do data

mining, you typically reconcile control totals before you actually do

the data mining, such as $10 billion is in this system and a million

transactions. That’s often a challenge because you don’t have general ledgers oftentimes with which to compare control totals. You’ve

also got systems here that have lots of errors in them, and errors

create false positives when you’re doing data mining, looking for

anomalies, etc., which could require you to spend considerable

amounts of time following up and not getting anything for your investment.

The other thing that I would mention here with respect to data

mining, some of these systems you may not be able to data mine.

Again, I’ll go back to the example from our hearing here last year

on the JSLIST where, if I was asked to go into DOD’s systems and

do data mining on the chem/bio suits and identify how many there

were, where they are, what the expiration date is on the package

that says when the suits are no longer good, I couldn’t do that data

mining because the DOD’s systems don’t have the data in them

from which to do that.

So there’s a lot of implications of all these systems in the area

of data mining.

Mr. HAMBEL. Thank you.

Just going for a moment to the question of annual funding, what

are the cultural and procedural issues that currently exist in attempting to manage funding flow to the various departments, agencies and bureaus within the DOD in order to actually establish and

measure accountability? In other words, who is watching the henhouse and just how many henhouses are there?

Mr. KUTZ. There’s lots of henhouses.

There’s, again, money all over the place. Dozens of locations and

buckets of money are out there being spent on these 2,000 systems,

and so there’s not a lot of transparency for us to go in and determine that there was $18 billion spent on business systems. It was

not a trivial task. We had to go through six inches of paper and

data mine out of the paper the actual information that showed us

that. So there’s not a lot of transparency there.

A lot of the projects or most of the projects right now are being

developed from the ground up without an architecture. People are

out there making narrowly focused, parochial-type decisions on

what kind of systems that they want to develop. There is not a lot

of strong oversight and accountability right now with money spread

all over the place, with little accountability in centralized corporate

control.

Mr. HAMBEL. Thank you, Mr. Chairman.

Mr. TURNER. We want to recognize Congressman Duncan from

Tennessee who has joined us.

Mr. DUNCAN. I have no questions, Mr. Chairman. I’m here just

to listen to the witnesses. Thank you.

Mr. TURNER. OK. Thank you.

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Mr. Chairman, do you have any additional questions?

Mr. SHAYS. Yes, I’d like another round here.

What oversight does the Office of Controller provide to insure IT

projects stay within costs and on schedule?

Mr. SMITH. Basically, Mr. Chairman, what we found, looking at

the four DFAS project, was there was a very limited review by the

DFAS and the OSD Comptroller. Basically, they look at the budget

justifications that come in; and, unless there is large anomalies

from year to year, that was the extent of the budget justification.

They were not aware of the huge increases in the Defense Procurement Payment System in terms of cost increases and scheduling

runs until we brought it to their attention.

Mr. SHAYS. OK. What oversight does the chief information officer

provide to insure IT projects stay within cost and on schedule?

Mr. SMITH. Again, on these, the two projects, the Defense Procurement Payment System and the DFAS corporate data base and

DFAS corporate warehouse, we found very limited oversight by the

CIO’s office, even though these two projects fall under their responsibility. We asked for documentation to look at what they had done

to question the cost increases and schedule slippages. We were not

provided with any.

Part of the problem they told us was that there’s this view that

the CIO does not have the clout to really terminate these projects.

So that may be—that was pointed out several years ago in another

GAO report about the CIO’s oversight review and responsibility,

particularly in regard to the Clinger-Cohen act.

Mr. SHAYS. Let me ask this. How would you characterize DOD’s

oversight of DFAS business systems and modernization efforts?

Mr. SMITH. I would have to say, based on these four projects

again, very limited oversight once you get outside of DFAS; and

even within DFAS we found very little rationale or questioning of

the cost increases and the schedule slippages.

Mr. KUTZ. Mr. Chairman, they’re trying. I mean, they recognize

these issues. They’re working on this architecture. They’re trying

to go from a situation where you have uncontrolled proliferation of

systems—I mean, you can see when you get to 2,000 systems, that

is uncontrolled proliferation of systems. They’re trying to go from

an environment where you had that to an environment where

you’re trying to tightly control, and they have taken some interim

steps. They’re not there yet. Not even close, probably, to being

where they have tight control over it. But it is a process, and they

do recognize this, I believe. Certainly when they come up to testify

I assume they will be telling you about what they specifically are

doing.

But it is very difficult to move from that environment I just mentioned to the kind of tight controls that you would want to see

when you’re talking about this kind of money.

Mr. SHAYS. Yes, it’s a huge amount of money. If systems worked

better, we would save a fortune.

So, Mr. Chairman, the only thing I would want to say is that I

am concerned—we have such good questions from the staff. I just

want to make sure from the staff that they don’t feel we need to

ask any others on this.

Vinnie, are we OK? OK. All set.

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Mr. CHASE. Yes. Greg, can you just describe for us how this new

system of control, the enterprise architecture that you’re trying to

implement, will—how do the four systems that you reviewed at

DFAS, how will this interface or how will it fit into the new enterprise architecture plan?

Mr. SMITH. We aren’t certain yet and neither is DOD where

these four systems are going to fit within the architecture. Definitely, DPPS won’t be part of it, since it has already been terminated. The other three are going through an evaluation process

now to determine which of the existing 2,000 systems will be part

of the architecture. That decision has not been made yet, so we

don’t have an answer yet, and that’s, you know, because we’re kind

of waiting to see where they fall out.

Mr. KUTZ. Mr. Chase, from an oversight standpoint where I believe they’re trying to go is they’ve established in their modernization seven domains, which would include like a logistics domain,

etc., and this would fall under a comptroller domain. As I would

understand it, that accountability for these systems would fall

under a hierarchy of oversight boards. There would be one at the

domain level. There would be higher ones, and potentially there

would be subcommittees from that domain.

They’re trying to control this within these seven domains, and so

this would fall under the financial—one of the financial domains.

They would try to control it there with the series of hierarchical

boards that they have in addition to and including the control of

the Chief Information Officer.

Mr. CHASE. Thank you.

Mr. TURNER. Yes, Mr. Chairman.

Mr. SHAYS. I would just hope that at least one of you would be

able to stay for the other panel so—in case we would want to call

you back just to understand maybe comments that are made by the

next panel. It would be helpful.

Thank you.

Mr. TURNER. Are there any additional questions?

Do any of the members of the panel have anything they wish to

add or to include?

OK. Thank you very much. Appreciate your taking the time and

the insightfulness of your testimony.

Next, we will be turning to our second panel, which will include

Ms. JoAnn Boutelle, Director Deputy Chief Financial Officer, Department of Defense; Mr. John R. Landon, Principal Director, Deputy Assistant Secretary of Defense, Command, Control, Communications, and Intelligence Surveillance, Reconnaissance, Space and

IT Programs; and Mr. Thomas Bloom, Director of Defense Finance

and Accounting Service, Department of Defense. And also included

in the panel will be Audrey Davis, Director of Information Technology and Chief Information Officer.

If the panel would please stand to be sworn in.

[Witnesses sworn.]

Mr. TURNER. I believe we are starting with Ms. Boutelle.

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STATEMENTS OF JOANN BOUTELLE, DIRECTOR DEPUTY

CHIEF FINANCIAL OFFICER, DEPARTMENT OF DEFENSE;

JOHN R. LANDON, PRINCIPAL DIRECTOR, DEPUTY ASSISTANT SECRETARY OF DEFENSE, COMMAND, CONTROL, COMMUNICATIONS, AND INTELLIGENCE SURVEILLANCE, RECONNAISSANCE, SPACE AND IT PROGRAMS; AND THOMAS

BLOOM, DIRECTOR, DEFENSE FINANCE AND ACCOUNTING

SERVICE [DFAS], DEPARTMENT OF DEFENSE

Ms. BOUTELLE. Thank you, Mr. Chairman, and members of the

committees. My name is JoAnn Boutelle, and I am the Deputy

Chief Financial Officer for the Department of Defense. I am

pleased to be here to update you on the course of financial and

business management reform within the Department. Strengthening oversight of business systems modernization is a key element

in the transformation of the Department.

Secretary Rumsfeld is committed to transforming the way the

Department does business—from the way it fights wars to the way

it orders parts. It is one of his top priorities. This transformation

effort is fundamentally different from past efforts because it is

being driven from the top by the Secretary and all of his senior

leaders. This top-down leadership strategy attacks the stovepiped

support culture entrenched in the Department, which today is unable to provide timely and key data to decisionmakers.

Transformation emphasizes rearranging the financial and business processes within and across business lines. Understanding

that sound management information is not possible without comprehensive business process reform and top-level management support are what truly distinguishes this reform effort from those of

the past.

Our strategy to increase the efficiency of the Department’s business processes and for creating sound management information

consists of the following four elements: First, build a DOD-wide architecture that prescribes the use of standard business and financial rules. Second, employ a DOD-wide oversight process, consisting

of DOD’s senior leadership, to implement the architecture and to

monitor Departmental spending. Third, refine and extend architecture to create a seamless connection between it and other Federal

and DOD transformation initiatives. And, fourth, use performance

measures, based on the President’s Management Agenda, to oversee the entire process.

Supporting our troops is the main reason we are pushing this

transformation. There must be no retreat in our question to optimize that support. Productivity gains from the Department’s transformation efforts will not only free up more resources for the frontline troops, it will also give decisionmakers the management information they need.

Guided by the recommendations of a prominent financial expert,

the Secretary created the DOD-wide Financial Management Modernization Program. Its fundamental aim is to overhaul our nonstandardized financial and nonfinancial systems and business processes. Many of issues brought to light in the General Accounting

Office audit report discussing the Defense Finance and Accounting

Service’s systems are being addressed in the financial management

enterprise architecture and the new governance process.

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The Department is developing a defense-wide architecture that

incorporates leading business practices. The architecture defines an

improved DOD business environment by prescribing the use of

standard business practices, rules, data and attributes. It is, in essence, an engine of transformation as well as standardization. The

architecture also link business process reengineering to management information needs of the Department’s decisionmakers.

The consistent use of standard processes throughout DOD will

enable our systems to provide timely and accurate financial management information to decisionmakers at all levels. Auditable financial statements and a clean audit opinion will be by-products of

this transformation effort.

We are also ensuring that our architecture meets the requirements of the governmentwide Federal enterprise architecture. In

doing so, we move closer to our ultimate goal—improving the Department’s business processes. The Department awarded a contract

for this architecture development to IBM in April 2002. We have

made steady progress in the development of the architecture since

that time.

The key to the success of transformation is making it self-perpetuating—the Department is embedding an ethic of change and constant improvement into its culture. We are working hand in hand

with the owners of the Department’s major business lines to implement the architecture. We are constructing a corporate DOD approach in the way we develop and field our business processes and

systems. DOD’s senior leaders have agreed on a high-level governance process to control our investments in information systems.

We clearly understand that successful business and financial reform requires the commitment and support of all those who maintain the Department business infrastructure.

In closing, Mr. Chairman, I want to restate that the Department’s business and financial transformation initiative has Secretary Rumsfeld’s complete support. We are working closely with

OMB and GAO. Our partners from those agencies have been participating in our reform effort from the beginning. We will also

need your continued support. Only by working cooperatively with

our partners within and outside of the Department can we build

an improved business support infrastructure.

That concludes my formal remarks, and I will be happy to answer any questions.

[The prepared statement of Ms. Boutelle follows:]

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Mr. TURNER. Thank you. Mr. Landon.

Mr. LANDON. Mr. Chairman and members, I appreciate the opportunity to respond to your request for information—are we not

on. I am sorry. Let me try again.

Mr. Chairman and members, I appreciate the opportunity——

Mr. SHAYS. If I may interrupt, I think you did this just out of

courtesy to the first speaker. But, Mr. Bloom, you don’t have to do

the first thing.

Mr. LANDON. Mr. Chairman, I work for the Assistant Secretary

of Defense for C3I and the DOD chief information officer, Mr. John

Stenbit, who regrets he could not be here today in person to speak

with you. However, he has charged me with executing his responsibilities in the areas of acquisition and program execution oversight, and I am prepared to address this topic with you.

I have responsibility for overseeing major acquisitions in the

command, control, communications, intelligence and space functional areas. In the summer 2002, Mr. Stenbit asked that I take

on the additional responsibility of overseeing information technology programs for which he has acquisition and milestone decision authority.

This portfolio includes 37 major automated information system

programs, or MAIS programs as we call them, ranging from business systems in the area of logistics, finance, health and personnel,

to command and control systems. I perform this function in cooperation with the Offices of Primary Responsibility or Principle

Staff Assistance within the Office of Secretary of Defense staff and

other offices within OSD who provide functional expertise on any

given area.

In the case of financial America and accounting systems, the Office of Primary Responsibility is the comptroller.

Approximately a year ago, Mr. Stenbit recognized the need for

more rigor and discipline in the acquisition of information technology programs and they asked that I apply the same degree of

oversight for these programs that I do with major defense acquisition programs for which I already have responsibility.

The common characteristics of these two groups of programs is

they are software-insensitive in nature, and the fact that many of

the same development approaches apply to both.

As I reviewed the GAO’s report, I found that I agreed with many

of their findings. Programs were being initiated without appropriate justification, review of the development progress was not occurring on a frequent and regular basis, and programs were allowed to continue when they exceeded established baseline performance.

In cooperation with the Comptroller’s Office, I want to assure you

we are taking steps to rectify these discrepancies.

In the area of rigorous acquisition discipline, we are assuring

that proposed programs are reviewed for compliance with statutory

and regulatory requirements before they receive authorization to

proceed into each phase of development. This means that business

process reengineering and an analysis of alternatives has been accomplished, and economic analysis of the calculated return on investment is conducted and that there are clearly established measures and accountability for program progress.

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In addition, the acquisition strategy must reflect an incremental

or spiral development with well-defined deliverables and a testing

regimen that validates results.

Once a program passes the criteria for entering development, I

work with the designated principal staff assistant, the executive

agent, and the program manager to ensure programs are being executed properly and that expectations are being met.

I accomplish this activity by requiring program managers to provide quarterly status reports on execution metrics, which I personally review with my staff. Deviations from the development plan

are highlighted and corrective action assigned.

At a more fundamental level, we are initiating reviews of the acquisition structure and processes within each of the executive

agent organizations to ensure qualified personnel are performing

acquisition functions and the internal structure supports established acquisition principles. We have recently completed our review of the Defense Information Services Agency and will proceed

to DFAS in our next review.

In closing, I want to assure you that we are taking positive steps

to ensure we are applying the necessary discipline and rigor for development of these critical information technology programs.

Thank you for allowing me this opportunity to outline our approach.

Mr. TURNER. Thank you.

[The prepared statement of Mr. Landon follows:]

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Mr. TURNER. Mr. Bloom.

Mr. BLOOM. Test. It works.

Chairman Turner, Chairman Shays, distinguished Members and

dedicated staff, my name is Tom Bloom. I am the Director of

DFAS, and with me is Audrey Davis, who is the DFAS Chief Information Officer.

Chairman Shays knows me from my past life as an Inspector

General at the Department of Education. Let me assure you that

it is a lot easier to criticize than to be correct. I am finding that

out every day.

Let me first tell you a little bit about DFAS and what we do. We

are the largest accounting and finance organization in the words.

We pay almost 6 million individuals each and every month. We pay

over 11 million contract or invoices each year. We record over 124

million accounting transactions, account for 267 active DOD appropriations, and manage $175 billion in retirement assets for the

military.

We are very proud of some of the recent accomplishments that

we have had in DFAS, including in fiscal year 2002, we reduced

the cost to our customers, the men and women who defend America, by $144 million from our 2001 amount. We are forecasting that

we will reduce our bill in 2003 by another $108 million. To put it

another way, comparing 2001 to 2003, we will be saving over $250

million for the American taxpayer.

We have reduced our work force by almost 4,500 individuals

since fiscal year 1999. We have done all this while increasing our

service and quality. We have put almost 2 million, 1.7 million on

our Web-based pay system, so that 24/7 our folks can access their

pay information. We have lowered by 30 percent the amount of interest penalties paid to contractors in the last year. We have been

achieving a 99.96 on-time rate for accounting reports while decreasing by 1 day the time period to deliver those reports, and we

have decreased problem disbursements by 90 percent from the

1998 levels.

DFAS is an obvious success story. However, an area where we

have much work to do is in the area of systems modernization. We

are neither as good as we need to be nor as bad as the tone of the

draft GAO report would suggest.

We certainly agree with the recommendations made by the GAO

in the draft report that we saw, and we have really already started

to implement most of those suggestions as of today. Certain disagreements of fact have been pointed out by us in our comment letter back to the GAO and in this written testimony.

Obviously, DFAS must be doing plenty right in order to achieve

what we have been able to achieve in the last 2 or 3 years. Much

work needs to be done, and we believe that we now have the right

oversight structure working with the Department to accomplish

this.

Ms. Davis and I stand ready to answer any and all questions.

Thank you.

Mr. TURNER. Thank you.

[The prepared statement of Mr. Bloom follows:]

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Mr. TURNER. Chairman Shays.

Mr. SHAYS. Thank you, Mr. Chairman.

Mr. TURNER. Since we have a limited number of people here, can

we do a 10-minute round?

Mr. SHAYS. We can still do 10 minutes.

Mr. TURNER. Great.

Mr. SHAYS. This is to all of you, what oversight does the Office

of the Comptroller provide to ensure IT projects stay within cost

and on schedule?

Mr. LANDON. Sir, if I might address that question from the C3I

perspective, what our office does is looks at more the acquisition

process, because there is a great number of similarities between

one program and another. You can look at the types of execution

metrics that are required. Since taking on this responsibility, I

have instituted quarterly reviews of each of the programs and program managers are responsible for submitting these metrics for us

to review. The types of metrics we are looking at are established

based on the baseline for the program, in other words, what are the

expectations of the program. So we can look at a, for instance, for

example, the schedule that the program manager has predicted,

and see if his actual is equal to his predicted.

We are conducting these reviews quarterly, as I said, and we are

getting more and more data and insight into the programs as we

do that. And we share that with the Comptroller, of course, do that

in conjunction with the Comptroller.

Mr. SHAYS. So the answer is you share all this information with

the Comptroller?

Mr. LANTOS. Yes, sir.

Mr. SHAYS. And that is it?

Mr. LANTOS. No, sir.

Mr. SHAYS. So they have it, you send it over to them?

Mr. LANTOS. No, sir. What we do is we conduct the review jointly.

Mr. SHAYS. I am interested in what they do.

Mr. LANDON. It depends. When you look at the program, what

you do ask you see how the metrics are being executed. If you see

deviations, then we step back, we take a look at what is the root

cause of the deviation, and then try to establish criteria for getting

well.

If we do not see it, we ask the program manager or the agency,

executive agent, to provide us with that data. But, in other words,

we open that dialog in order to address the problem.

Mr. SHAYS. How about the chief financial officer?

Ms. BOUTELLE. What Mr. Landon was explaining to you is the

process that we go through for reviewing the high dollar level items

that we bring under a certain review, and then we have the rest

of the systems which are the majority of the systems.

The process we go through in the Comptroller area for the high

leveling systems he was talking about is we are a partner with him

in that review, and are supposed to be questioning the costs and

the performance of the development initiative.

Now, I cannot speak to what the Comptroller was doing for these

systems prior to my arrival last summer, but I can tell you since

then that we have an active person that is participating in doing

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the reviews, and it was part of that effort that eventually led to

DPPS being eliminated.

So, we have room for improvement there.

For the other systems, what we do, those are pretty much under

the components review, and those we do review through the budget

process, and we do question to a certain level on their budget execution, but not on the functionality and capability of systems

through that process.

Mr. SHAYS. How would you characterize DOD’s oversight of the

DFAS business systems modernization effort?

Ms. BOUTELLE. I would say that what we are doing now is the

right thing, that standing up the financial management modernization program and standing up the domain owners in the governance process and bringing the systems underneath different domain owners for review, and that would be all of the systems we

have just gone through, doing an inventory of those systems and

breaking them out by domain, which has never been done before.

They have always been reviewed and controlled by the service or

the component.

So, I think that what we are doing in that respect, we have setup

reviews with DFAS for what we refer to as their D systems, the

ones that were established to do corporate applications, so we have

those scheduled. I think there is a lot more oversight going on now

than there was in the past, and you will even see more as we mature through this domain governance process.

Mr. SHAYS. Anybody else?

Ms. DAVIS. Mr. Chairman, from the DFAS perspective, since the

inception of the financial management modernization program in

2001, there has been a tremendous amount of oversight from the

comptroller’s staff and from the Financial Management Modernization program. Insofar as we received guidance in 2001 to constrain

all of our investments in our systems that were enhancements to

only focus on those critical changes to keep our systems operational

so that we have actually been presenting our systems changes to

the Comptroller, showing benefit costs, and they have been holding

us to a return on investment of 18 months or less before we have

gotten approval. So any enhancements to our systems beyond just

maintaining them and keeping them operational to support our

mission have actually been approved by the Comptroller.

Mr. SHAYS. Thank you for these answers, but why was the development of the DFAS corporate data base, corporate warehouse

business system, allowed to proceed without the required economic

analysis?

Ms. DAVIS. For the corporate data base and the corporate warehouse, while we did not do an economic analysis, what we did do

however was a cost-benefit analysis, which included a return on investment. The reason we choose to do a cost-benefit analysis on the

DCD in particular was because it is an infrastructure component.

The benefits to using that infrastructure component really accrue

to the applications that use it.

So, the economic analysis was not particularly appropriate, so we

used the cost-benefit analysis. So when you see in the report that

there was not an economic analysis, that is true, but we did do a

cost-benefit analysis for the corporate data base.

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Mr. SHAYS. I tend to expose my ignorance at times, but it helps

me understand things. What would be the difference between an

economic analysis versus a cost-benefit analysis?

Ms. DAVIS. The primary difference is in the economic analysis

the benefits accrue to the application for which you are doing the

economic analysis. Because we couldn’t show other than qualitative

benefits to the DCD, because it is being used by other applications.

So when another application needs to use, for instance, an interface

that is already built to an existing accounting system, that benefit

really accrues to the application that is using that capability and

not to the DCD.

It is like when you put in place a network, the network in and

of itself doesn’t provide—doesn’t accrue any benefits, but everyone

who uses it benefits from it.

Mr. SHAYS. I think it was a good answer, but I don’t understand

it. That is not your fault.

Ms. DAVIS. I apologize.

Mr. SHAYS. You don’t need to apologize. I am going to think

about what you said here.

What is the justification for the continuing investment in the corporate data base and the corporate warehouse system?

Ms. DAVIS. If I can try to help clarify a little bit, because it is

along the same lines.

The corporate data base, for instance, the capabilities that it offers today, provides a single source of electronic funds transmission

information so that all applications that need to transmit, to make

a payment using electronic funds transmittals, come to the corporate data base to do that. So they don’t have to build that or

keep that information themselves. Well, the applications that pull

that data, they are getting the benefit. The DCD, the corporate

data base, is just a repository in that sense.

Also the corporate warehouse, which is an extension of the corporate data base, is being used to support special operations command as a part of their efforts to manage their financial information in support of the war.

Mr. BLOOM. That has been a tremendous success. In the past,

special operations command had been getting information really

from five or six different sources, and not being able to make heads

or tails of that. By using the corporate data base and the corporate

warehouse, they are now able, in a very short period of time, to get

the kind of information they need to manage the special operations

forces. General Holland has been particularly complimentary of the

DCD for helping him do that.

Ms. DAVIS. So the simple answer to your question really is, Mr.

Chairman, the need to continue investing in DCD and DCW really

is as other applications need to use the capabilities it offers.

Mr. SHAYS. I know we have other Members here, so I will go a

second round later. Thank you, Mr. Chairman.

Mr. TURNER. Thank you.

Mr. Kucinich, we are on a 10-minute round of questions.

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

A question for Mr. Bloom: Last week the Department of Defense

Inspector General issued a report that revealed the A–76 competiVerDate 11-MAY-2000 12:39 Oct 02, 2003 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 D:\DOCS\89166.TXT HGOVREF1 PsN: HGOVREF1
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tion for the DFAS military and annuitant pay functions was erroneously awarded to the private contractor ACS.

Now, in your testimony, you state that you are proud of DFAS’s

success in reducing costs to the taxpayers. In fact, the in-house

public team won the award by at least $31.8 million. The error

began with Mevatec, the consultant hired by DFAS, to prepare the

in-house bid, and was repeated by DFAS and the Department of

Defense Inspector General. Only queries from my office led the Department of Defense Inspector General to find the error after the

contract was awarded to ACS. As I understand it, the contract is

for 10 years, but gets renewed every year.

Now, according to the Department of Defense Inspector General,

DFAS, which you say is proud of its success in reducing costs to

taxpayers, knew of the error of $31.8 million in June 2002. However, DFAS chose to renew the contract in January 2003.

Why, Mr. Bloom, did DFAS knowingly renew this contract, when the in-house team was $31 million cheaper?

Mr. BLOOM. The process, if we had chose to do a rebid, would

have taken certainly longer than the 6 months that we would have

had to rebid that. We were really left in a position—and while the

IG let us know that there was a potential of this in June, frankly,

it wasn’t proven to me until July. So we really had no choice at

that point, other than to renew the contract for another year.

As you mentioned, we do have the opportunity each year to decide whether we would and can or should renew the contract, and

we will look at that and do the economic analysis each and every

year before going forward with a renewal.

Mr. KUCINICH. So you are saying that you knew in July, and you

nevertheless renewed the contract, even though you knew the other

one was cheaper?

Mr. BLOOM. I had no choice at that point, sir. The only thing I

could have done, we could only rebid the situation. It took us 2.5

years to do the first contract. There is no way we could have gotten

this done in a 6-month period.

Mr. KUCINICH. There was no need to rebid though, because you

could have returned it back to DFAS.

Mr. BLOOM. My lawyers tell me, sir, that is not legal to do that.

That once the contract was extended, that is what we were doing.

Mr. KUCINICH. You are going to tell this committee and the

American taxpayer, who you say you are here to protect that you

knew the taxpayers were going to get hit for $31 million, and there

was no need to rebid?

Mr. BLOOM. There may be a need to rebid. I am not saying there

is not a need to rebid. I am saying there wasn’t time to rebid. We

will look at that contract each and every year.

Mr. KUCINICH. If you know the taxpayers are going to lose money

on this contract, are you going to renew the contract in January

2004?

Mr. BLOOM. If it is proven that the taxpayers would indeed be

better off, we will do the correct thing.

Mr. KUCINICH. Now, the A–76 competition process typically employs a 5-year contract period to make comparisons. That time period can only be changed if no bidder gains any advantage. However, ACS only won the competition in year 9 of the contract. By

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extending the contract to 10 years, ACS clearly gained a competitive advantage.

Mr. Bloom, can you tell this committee why the competitive bid

was modified in such a way that only benefited ACS.

Mr. BLOOM. It was not modified. The decision to go 10 years was

made long before we knew there were going to be any bidders for

the contract. So it is not correct that it was modified for ACS, to

the benefit of the contractor.

We choose 10 years as the timeframe because it gives us an option. A 10-year option is always better than a 5-year option. I

would always rather have a 10-year option, because we are the

ones with the ability to have the option. So, you know, 10 years

having a stable base of 10 years was really what is best for the

government and clearly——

Mr. KUCINICH. Except in this case it wasn’t.

Mr. BLOOM. I am not sure that is the case, sir.

Mr. KUCINICH. You have two scenarios here. One is the contract

that was awarded erroneously, and the second case is the contract

that was awarded when you didn’t know there was an error. I am

saying even when you didn’t know there was an error, that it was

only in year 9 that ACS was able to show any kind of success, and

those numbers were wrong.

Mr. BLOOM. Well, that is how ACS chose to bid it, based on a

10 year comparison. We have no idea how they would have bid it

had we made it a 5 year option, 6 year option or 7 year option.

Mr. KUCINICH. Let me ask you this: Are you aware of a certification by your office that no competitor would benefit from a contract of longer than 5 years? Are you aware of this?

Mr. BLOOM. Yes, I am aware. I think that was signed by a Mr.

Carnes.

Mr. KUCINICH. Your name is printed on the line. What is his

name?

Mr. BLOOM. Mr. Carnes was acting for me at that time.

Mr. KUCINICH. Why didn’t you sign that certification?

Mr. BLOOM. I would have signed it. I must not have been in town

at the time. I would have signed it had I been there.

Mr. KUCINICH. So you stand behind this certification?

Mr. BLOOM. I do. I do.

Mr. KUCINICH. Is Mr. Carnes with you now?

Mr. BLOOM. Mr. Carnes is no longer with the Department of Defense.

Mr. KUCINICH. Can you tell me how many A–76 competitions

DFAS has performed?

Mr. BLOOM. I believe we have completed six. We have another

one in the process right now.

Mr. KUCINICH. And how many of those resulted in a private bidder winning?

Mr. BLOOM. Only one.

Mr. KUCINICH. Now, DFAS has performed a total of eight A–76

competitions, is that correct?

Mr. BLOOM. I think it is six plus one, but I don’t have the numbers.

Mr. KUCINICH. Until this one, all were won by the in-house public team, is that correct?

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Mr. BLOOM. That is correct, yes.

Mr. KUCINICH. I assume you are aware of the President’s desire

to have many government functions be privatized?

Mr. BLOOM. I know what I have read, yes.

Mr. KUCINICH. OK. And consider DFAS’s record of A–76 competitions not resulting in the stated goals of the President, have you

ever indicated to anyone your desire to see DFAS lose a competition to a private bidder?

Mr. BLOOM. Absolutely not.

Mr. KUCINICH. Have any of your superiors ever communicated to

you a desire to see the in-house bid lost in an A–76 process?

Mr. BLOOM. No.

Mr. KUCINICH. No further questions.

Mr. TURNER. Thank you. We have been joined by Adam Putnam,

the chairman of the Subcommittee on Technology, Information Policy, Intergovernmental Relations and the Census. Mr. Putnam.

Mr. PUTNAM. Thank you, Mr. Chairman. I ask unanimous consent to insert my written statement in the record in the appropriate place.

[The prepared statement of Hon. Adam H. Putnam follows:]

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Mr. PUTNAM. I read the GAO testimony. I apologize for missing

the first panel. I read it over the weekend and on the flight up. You

guys have frittered away more money than the GDP of a bunch of

developing nations. It is troubling that we will consider a $74 billion supplemental this week on the heels of record funding for the

Department of Defense for very important laudable goals, but it is

troubling to see how much waste there truly is, and just how big

those figures are.

One of OMB’s IT program performance goals, and that is where

I am really coming from as chairman of the Subcommittee on Technology, one of OMB’s IT program performance goals is that on average, all major IT modernization projects are operating within 90

percent of their cost schedule and performance projects.

How many IT modernization projects does DOD have and how

many are within that 90 percent range?

Mr. LANDON. Sir, I would like to give you a number right now,

but if I could, I would like to take that one for the record and I

can provide it to you more accurately.

Mr. PUTNAM. I look forward to that.

Could you identify the major projects off the top of your head

that are not achieving the 90 percent goal, along with any cost

overruns or schedule slippages and the corrective actions that are

being taken. Do any leap to your mind?

Mr. LANDON. Yes, sir. I can name a few. In fact, for instance, the

program, DFAS program we have spoken to earlier, DPPS, has

been terminated because it was approximately 50 percent over cost.

There are other programs that we are taking steps to either

truncate or have redefined. Some of these are the Standard Procurement System, which is being truncated. By that I mean the development is, we are seizing the development until we can start a

redefinition process of what the real goals and requirements of that

program are.

There are others, the JCALS program, JDAS program, that are

also major developments that were over cost and have been—I

don’t want to say terminated, but they have been put into what I

would call a maintenance status or sustainment status until we

can work out the issues with the program and make sure it is defined properly.

Mr. PUTNAM. Could you just briefly elaborate on what JDAS and

JCALS stand for, for the record?

Mr. LANDON. Yes, sir. The JCALS program is really a program

that was automated tech order program. In other words, a digitized

tech order program for common—it was a logistics program for

common data among the various services and users that use common information.

JDAS, I am sorry, you are going to——

Mr. PUTNAM. I am glad to see you guys get mired down in your

own acronyms too. I thought it was just Congressmen that couldn’t

keep them all straight.

Mr. LANDON. Let’s see here, I mentioned the defense message, I

did not mention defense messaging system, which is a program for

digitizing messaging. We have asked that be redefined in that it

applies to a new architecture based on enterprise services. So that

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has been an ongoing program for a number of years, and it is at

this point we are redefining the program.

Also there is a program called TCAIMS, Transportation Coordinators Automated Information for Movement System. This is a system that service is used to provide information on movements of

equipment.

Mr. PUTNAM. That is an example of a program that has been terminated?

Mr. LANDON. No, sir, that has not been terminated. It is being

reevaluated simply because it has—the initial stages of that program were not developed in an incremental fashion and what we

have done is we have gone back to look at the deliverables, and

what is a better way of introducing that capability for each of the

services. So it is being reevaluated at this time.

Mr. PUTNAM. The DPPS system that has been eliminated, we

have lost money that was sunk into that, but we are also back to

square one. So what is the current status quo, how many procurement systems are now back out there because the one whose goal

to unify it has been terminated? Where are we now with regards

to that?

Mr. LANDON. I will defer to Mr. Bloom for that.

Mr. BLOOM. DPPS was a procurement payment system, and so

we have to continue to maintain the legacy systems that we had.

I think is that seven——

Ms. DAVIS. There would be eight.

Mr. BLOOM. Eight legacy systems.

Mr. PUTNAM. If you would, I know that you wanted to respond

in writing, if you could get us that listing of those major projects

not achieving the 90 percent goal, along with cost overruns, schedule slippages and planned corrective actions.

In December of last year, the DOD Comptroller terminated

DPPS. They noted that, as you have said, it was being terminated

due to poor program performance and cost overruns. Do we have

anything to show for the $126 million that was spent on that program and who, if anyone, was held responsible for that program

and the failure of that program?

Mr. BLOOM. Well, let me start off, I guess, by answering the

question. There is probably little measurable meaningful asset left

out of that $126 million. There may be certainly lots of lessons

learned, but no meaningful asset there.

I am the Director of DFAS, so I am ultimately accountable for

that failure.

DPPS, I guess to get biblical on you, was really a system that

the foundation was built on sand instead of built on rock. When it

was designed, when the thought was brought forward many, many

years ago, long before either Ms. Davis or I were there, they made

some assumptions that were just incorrect assumptions, and so

when we built a system based on a foundation where we thought

that we could get the whole Department to work under one standard, to work under one system, that was not going to be achievable.

We built it on a foundation thinking we could use an off-the-shelf

product. We bought the off-the-shelf product and found in order to

accommodate the different business processes, the different business practices, we were going to have to modify that, not the 30

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percent that we had originally hoped, but 70 percent was ultimately where we ended up.

Then ultimately it turned out the program took so long, that as

we worked on the architecture, the overarching architecture that

we have talked about here, we realized that it just wasn’t going to

fit in the architecture.

One of the things that the GAO report, at least the draft I saw,

failed to mention, was that I believe the most important reason

DPPS was killed is that it just wasn’t going to fit into that overall

architecture, the new architecture that we should have had, that

foundation we should have had, before we started such a project.

Mr. PUTNAM. Let me drop back to 40,000 feet for just a second,

because I know that you go to work every day and are doing absolutely the best that you can for the men and women out there who

are dependent upon these logistics and the information and all the

things that go into these IT systems and the logistics systems and

the procurement programs and all that.

The track record of DOD on business management is horrendous,

under any kind of administration, and we keep writing you the

checks to continue buying new systems, adding on to systems.

There really hasn’t been much accountability from our end either.

What do you think the solution is? If you could take a blank

piece of paper and a fresh sharp pencil, knowing how frustrated

you must be to have to sit there and answer for losing billions of

dollars, what is the answer, in your opinion?

Mr. BLOOM. Well, I think that we have hit upon the answer, and

we are working hard for that answer, which is having the overall

architecture, the enterprise architecture that the Office of Comptroller has been working on for the last year.

Having that architecture and having the executive support, the

support of the Secretary, the support of the secretaries of the services and the support of the under- secretaries to make that happen,

I think we are moving toward that. So if I could start with a blank

piece of paper, that certainly is how I would start. We talk about

it as a blueprint. I guess you could call it a blueprint. I think it

is a foundation or rock that you have and you can go back to, and

that you have the correct oversight, the kind of oversight we have

talked about here.

Ms. BOUTELLE. If I can expand on that, I came from an operational environment coming in to the Comptroller, and what we are

doing with the enterprise architecture is exactly what we need. We

are for once stopping and getting the support to build business

processes, and we have brought together the business line owners

and we have formed a governance group. It is tough, I don’t mean

to imply that this change is easy, but for the first time we are actually looking at defining end to end processes and making that, the

rule book along with the data elements we are going to use, what

management information, the decisionmakers need, capturing that

and having that as our blueprint to move ahead.

In the past what we had, and DPPS is one example, we attempt

to adhere to Clinger-Cohen, but we only do pieces of it. So we went

out and bought commercial off-the-shelf products, but we didn’t do

business reengineering. So what we did was we attempted to customize the cuts, very costly, and then to think about upgrading it

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would have been just something that none of us, I think, could

stomach.

So where we are now, it is doing the business process re-engineering first, coming up with as many commercial business practices as we can, and then looking for a technical solution to support

those business requirements. But it is not decomposing a process

down to be a DOD process. That is not what we are doing.

So I think where we are at now is exactly where we needed to

be. We have just not had this type of support in the past to do this.

Mr. PUTNAM. Thank you.

Mr. TURNER. Mr. Ruppersberger of Maryland.

Mr. RUPPERSBERGER. Mr. Bloom, I came late, but when you

asked the question Congressman Kucinich asked about the contract, where there was a breach in the contract, but if you didn’t

move forward with the contract, it would have taken a year or two

for you to get someone else, so which means there would have been

a lack of performance. Is that basically what your testimony was?

That is how I interpret it.

Mr. BLOOM. I am not sure I understand your question.

Mr. RUPPERSBERGER. The question about the issue of when there

was a breach in the contract, the lack of performance, and why did

you go ahead and continue to move on with that contract, you said

if you would have had gone to rebid it, would have taken 21⁄2 years

to get to where you needed to be.

Mr. BLOOM. No, there was no breach in the contract. What actually happened was there was a mistake made in evaluating the two

bids, and so the award went to a contractor instead of staying inhouse, so the work went to the contractor. The people, by the way,

the contractor hired any and all people that wanted to go to work

there, all the government employees who wanted to work for the

contractor went to work for the contractor.

Many of them retired, took the buyout. So putting it all back together certainly would have taken more than a year, certainly

more than the 6 months. I would suggest it might have taken more

than a year, a year and a half to put it all back together. But the

fact of the matter is the lawyers tell me we actually, that the contract signed, it is a valid contract. We have the option to terminate,

but we would have to have a new bidding process in order to get—

in order to move back.

Mr. RUPPERSBERGER. I understand that. Really, it is almost a

culture that we have, and because we deal in government and we

have the bidding processes, sometimes maybe our contracts do not

have the protections that we need so that we have to go back to

that process. Especially now, while we are at war, we need to perform. So it is an operation versus an efficiency.

What would you in the scenario you talked about, because what

we try to do here in Government Reform is investigate, ask questions, but hopefully by doing this, we will come to a bottom line

where we can try to at least determine what would be more efficient.

Sitting in your position, what would you recommend that could

be done to avoid this type of situation that you talked about so we

don’t get to that position? Because reading through the GAO report, there are a lot of issues you have to deal with here. It starts

73

at the top. You know, we are not here to criticize, we are here to

try to look at government reform, so-to-speak, to see what you can

do better.

In your position on that specific scenario, what would you have

done ahead of time if you could to make the contract in a situation

where we wouldn’t have been put in that position to continue to

move out and using taxpayers’ money that maybe we could have

saved in another way?

Mr. BLOOM. Actually, the system is probably pretty good. It just

didn’t work. This was a situation where we didn’t have the competency in house to do the evaluation. We hired a contractor to

help us, an independent contractor, to help us. Under the system,

the IG comes in and essentially redoes it to certify that what we

have done was correct.

So not only was an error made to begin with, there was an error

made in the certification. This was just two errors being made. I

am not sure you should build a system where you have to check

it a third time. I think while everybody tried to do the right thing,

there were just two significant errors made.

Mr. RUPPERSBERGER. Reading the notes throughout the weekend

and what we have here, there seems to be a lot of issues generally,

and what we are talking about here today. I think there has to be

more focus on why there is a problem, what GAO says and what

the plan to fix that. There has to be a change in thinking about

the accountability issue, and not just talking about we have to perform, which we do. We need to perform, and we need to move forward.

I only have a couple of seconds to go, I see the light. I am not

going to be able to develop this much further. But my point is these

are serious issues that have to be dealt with. We want our Department of Defense to be extremely strong. But it is a management

issue. It is an accountability issue. It is going to take some time

to fix it, but it has to be done.

Mr. TURNER. Thank you. In the previous testimony from GAO,

they talked in terms of the problems of oversight of these projects

being an issue of effort, and they talked in terms of it being at all

levels; in the inception of the projects; with those projects that were

approved; evaluating whether a project should go forward, the design or system construction process as a result of shifting needs; or

perhaps lack of oversight in the products that are being undertaken; and then implementation, their utilization of the lack of

buying in.

I certainly understand and appreciate your efforts to look at the

oversight function, making certain that people are doing their job

and making certain the projects are doing their job. But I wonder

to what extent the current system of acquisition, the process itself

and not just individuals that are not adequately reviewing processes you have in place, could be hampering the ability of the Department to get efficient and effective systems, and what your

thoughts are on this?

In my opening comments, I was relating that in the private sector, they indicate that they start with not what system they want

designed, but what questions do they want answered, what need do

they have in the IT arena, and then work in partnership with an

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IT provider who actually then provides the solution. Where it

seems many times in the government acquisition process for IT,

that the overspecification of the system itself might provide lack of

flexibility, lack of partnership, and lack of some of the give and

take that you might find in the oversight communication process.

Ms. BOUTELLE. You are absolutely right. Today what we do is we

define it down to the how that we want, so that we end up with

systems that don’t always deliver what we meant to say.

We have those communication problems, I guess. But what we

are doing on the architecture is we are following best commercial

practices. We are defining the architecture down again to a level

where it is very clear on what the different types of functionality

would be that require, but it doesn’t go down to the how do you

make it happen. So it doesn’t take it down to the desktop. So it

stops at a higher level, and then from there we will be making acquisition decisions on what the right technology should be, if that

helps.

Mr. TURNER. Yes. In talking about functionality, I know many

times in IT projects, when you take a survey of what people would

like to see in a system, you get an array of different options. Some

of them are: ‘‘I have got to have,’’ and some of them are ‘‘I would

like to see this.’’

Ms. Davis, you were talking about the issue of cost-benefit analysis of the economics. Does your process pursue an option cost so

you actually get breakouts to understand what the additional

functionality might be so that when you are making these funding

decisions, you are not making it just in one whole bulk, but that

people can actually see if there are items that might be causing

your project financially to go astray?

Ms. DAVIS. Yes. Initially, we do look at alternatives and do an

analysis of alternatives before proceeding. I think you are correct

in terms of our processes, they, to some extent, limit us. The Department has a very structured development acquisition process for

acquiring technology. It was really designed for major weapons systems development, which is very complex, and then we try to apply

it to the development of business systems, and then now we have

moved beyond trying to develop our own business systems, and we

are trying to acquire off-the-shelf capabilities and trying to apply

that same acquisition process. It just doesn’t fit well.

Over the years, there have been improvements made to that acquisition process, but we will do well to learn from what industry

is doing in terms of how they are buying more off-the-shelf capabilities rather than building them.

Mr. TURNER. That takes me to my next area of interest, which

is the financial management modernization program. One of the

questions I asked the GAO representatives and panel members is

to what extent do they have the authority that is going to be necessary for this change? Have they been given enough authority to

effectuate the change both at the inception, the design of the system, the construction phase, also the implementation or buy-in

phase?

Ms. BOUTELLE. I think that is up equivocally the answer is yes,

they have been given the authority. Secretary Rumsfeld expects us

to make this happen, and he has charged his senior management

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officials with the responsibility. They have taken the responsibility

as the domain owners, business line owners, to have that type of

a governance process put in place to where we are managing across

the Department the business processes and determining what

those business rules will be.

The review of the funding of the legacy systems that are out

there and what needs to be funded, as opposed to maintained, until

we bring on the technical solution for the architecture, will be reviewed by the domain owners and will have to be approved before

that goes into the budget.

So, the processes are in place to give them the authority that

they need, and they certainly I think have all stepped up to embrace this.

It is something we are really excited about. Like I said earlier,

we have never had this opportunity before to do it the right way.

People are getting very excited about that now. Again, I don’t want

to make you think this is going to be easy, because, again, like I

said, we have just done the inventory of the 2000 systems and

breaking them out by the domain, so it is going to be a lot of tough

work, but I think we do have the authority to make the decisions.

Mr. TURNER. Does that include addressing issues? Ms. Davis

pointed out about some of the processes themselves in acquisition

of weapons systems versus IT.

Ms. BOUTELLE. Yes. We are going to use, going into the process,

the current regulation that Mr. Landon had talked briefly about.

We are going to use that to manage by. But where it makes sense

to change, we are going to change it.

Ms. DAVIS. Mr. Chairman, if I could add to that, having an enterprise architecture will actually allow us to do the more modular

and incremental development, because the plan will be there and

we will be able to determine whether or not the solutions actually

fit in with that.

Mr. TURNER. Thank you.

Going then to a second round of questions, Mr. Chairman, do you

have additional questions or comments?

Mr. SHAYS. Thank you very much. I am looking at the title of

GAO’s remarks, and it is called, ‘‘Long-standing Management and

Oversight Weaknesses Continue to Put Investments at Risk,’’ and

the title of their document that we have been talking about is

called, ‘‘DOD Business Systems Modernization: Continued Investment in Key Accounting Systems Needs to Be Justified.’’

On page 18 of this document, I want to just come back to the

whole issue of DFAS and the economic analysis. As I view your description of economic analysis, Ms. Davis, what I got from it was

that somehow in economic analysis, you have to justify it within

the stovepipe and your cost-benefit. You can go out and say we can

do good things here, here, here and here, and the costs are this and

the benefits are this, therefore it is a positive. That is how I sorted

out what you are telling me, what probably is not accurate.

Let me just read you what they said, and then just get your response.

They basically said on page 18, a key piece of information, the

economical analysis, was never completed for the DCD/DCW

project. In May 2000, the Director of DFAS granted approval to

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continue with development of DCD with a condition that a costbenefit analysis be completed by June 2000. DFAS completed a

draft cost-benefit analysis for DCD in October 2000. This document

was not finalized, and in November 2000, DCD/DCW were combined into one program.

Since that time DCD/DCW has continued without a valid, wellsupported economic justification to support continued investments

in DCD/DCW. DCD project management officials stated that the

economic analysis has not been finalized because they were unable

to agree on how to compute the return on investment and demonstrate that benefits exceeded costs. That to me is—I mean, what

they suggest is that even the cost/benefit wasn’t done.

Ms. DAVIS. The cost/benefit was actually done, and we provided

a copy of that to GAO.

Mr. SHAYS. For the combined programs?

Ms. DAVIS. Not for the combined program. For DCD.

Mr. SHAYS. So what about the combined programs?

Ms. DAVIS. The combined programs we are in the process of completing an economic analysis for that, for the combined programs.

Right now we’ve taken a step back. Because of the termination of

DPPS and the interrelationship that the DCD and DCW have with

DPPS, we’re relooking at strategy for DCD/DCW and working with

our oversight authorities from C–3I and the comptroller to determine how much additional investment we need to make in that.

Mr. SHAYS. Mr. Landon, you had—I had written down—I’m not

sure I can get what I wrote down, but it sounded like Yogi Berra

to me. Or it may have been you, Mr. Bloom. I’m not sure who.

Mr. BLOOM. I love Yogi Berra.

Mr. SHAYS. Yes. It was the program really works well, but it

just—you said the program is really a good program, but it just

doesn’t work. That was kind of your quote. Which one of you was

that? Do you remember that quote?

Mr. BLOOM. I can’t take——

Mr. SHAYS. Someone said that, and I would have loved to have

jumped at that time. So it’s rather unfair to you. Neither one wants

to take ownership of that statement?

Mr. LANDON. It wasn’t my comment, sir.

Mr. SHAYS. It was your comment.

Mr. LANDON. No, it was not.

Mr. SHAYS. OK. Was it the gentleman to your left?

OK. Do you remember in what context you were making that?

Ms. BOUTELLE. Oh, I do. It was that the A–76 process itself

wasn’t broken. It was when you were addressing that the breach

of contract——

Mr. BLOOM. Oh. It had to do with——

Mr. SHAYS. I honestly do think Yogi Berra is kind of brilliant. I

do. But it did strike me as kind of fun.

Mr. BLOOM. No. We were telling you about the A–76. You know,

the process probably works, it just didn’t work in this case. I did

say that.

Mr. SHAYS. OK. I wanted to get you to qualify it.

The bottom line, this is not a new story what we’re hearing here.

I want you to, each of you, to tell me in our meeting with the Appropriations Committee what should we be asking them to do to

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get our information systems to work better? One of the suggestions

clearly is that we have, you know, a strong centralized management that has—extends beyond the Presidential term, that is not

a political appointee with some—but, you know, with the clout of

being able to say no and yes. What would you all be suggesting?

Ms. BOUTELLE. Well, there’s a couple of things that have already

been requested of us, and I think these are excellent requests. And

it’s—one is that we deliver the architecture that we said we were

going to deliver, that Team IBM will be delivering the end of April,

1st of May, and then that we deliver a transition plan that shows

how we get from the ‘‘as is’’ to the ‘‘to be.’’

Now, that will be at a high level because we don’t know where

we’re going yet. We don’t know what the technical solution will be.

But I think that they need to ask us to continue to give them updates on our progress on the architecture and the implementation,

and that we perhaps even give them updates on the systems that

we have reviewed. Again, we go back to that inventory that the

GAO showed, and it’s really close to 2000 now, that we’re not going

to do the review of that inventory overnight, but we should be

breaking that by high-dollar systems and taking the high-dollar

systems first, and we should be able to report to them how many

we have inventoried and done the reviews on, and compared to the

architecture.

So I think those are valid things for them to ask us to manage

or to monitor our progress toward controlling the IT investments,

and that we’re not investing in the future for anything that doesn’t

comply with the architecture unless there’s a good business case to

support it.

Mr. LANDON. Yes, sir. I think Ms. Boutelle has the key, which

is, in my mind, the fact that we have to establish architectures that

programs understand they build to. If you set the standards, then

you are more likely to, in turn, get the desired result that you

want. We’re doing this with the financial management enterprise

architecture, other architectures, and we are really not in a good

position to say we have very many, but the global information grid

is another key architecture that’s been established. It is into version 2 at this time. But it is really a key about how we move information within the Department of Defense and even outside the Department.

Mr. SHAYS. Are any of you political appointees, or are you longterm employees?

Mr. LANDON. No, sir.

Mr. SHAYS. OK. So the answer is no for all of you. So you really

can’t speak on a policy issue, I gather. So asking you about the

benefit, the cost/benefit of the chief—asking you for an economic

analysis of chief management officer, you’re not really in a position

to suggest whether there’s logic to that or not. The earlier panel—

I have been a little facetious here. It’s Monday, but the earlier

panel said almost without any hesitation that if you really want to

come to grips with some of our IT problems in general, we need a

chief management officer who is, you know, in a position of tremendous power, but has some longevity and so on. And is that a recommendation you are comfortable responding on? Any of you.

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Mr. LANDON. Sir, I’d like to make a comment, I guess, in terms

of the structure of the Department. I’ve always viewed the Deputy

Secretary as our chief management officer, and he is responsible to

a large part for running the day-to-day business of the Department.

Mr. SHAYS. Great. But in a sense, though, the Secretary of Defense is your—obviously in my judgment, the chairman of the

board runs—the person, the chief executive officer, it seems, strikes

me as your Deputy in all your Defense departments, but shouldn’t

there be a part that’s broken up, given the gigantic size of this Department? And shouldn’t there be some continuity, because isn’t

the Deputy someone who basically comes and goes with whomever

is the new President?

So you have really almost answered my question without even

having to. The answer, it seems to me, is yes, and the reason it’s

yes is because that key position of running the government, that

person leaves.

Mr. LANDON. Yes, sir.

Mr. SHAYS. OK. So that was very astute of you.

Mr. LANDON. I think, though, actually the Department—and I

think Ms. Boutelle may be able to talk to you more about this, but

the establishment of the SEC, or the Senior Executive Committee,

by the Department was put in place to look at business processes,

and I think that may be a step toward what you’re asking.

Mr. SHAYS. OK. Mr. Chairman, thank you very much. I’m all set.

Thank you. I thank all of our witnesses. I do know, though, before

we leave, Mr. Chairman, the second round, I don’t know if it would

make—I do think it would make sense just to have GAO make

comments of what they’ve heard before we adjourned.

Mr. TURNER. Mr. Ruppersberger.

Mr. Putnam.

Mr. PUTNAM. Thank you, Mr. Chairman. Just to pick up very

briefly where Chairman Shays left off, I was operating on the understanding that they were all political appointees as well. Since

they are not, I would ask how long each of you have been in your

current position.

Ms. BOUTELLE. I have been the Deputy CFO since the end of

July 2002.

Mr. PUTNAM. Mr. Landon.

Mr. LANDON. Sir, in the acquisition oversight role it’s been several organizations, but it’s been approximately the last 7 years.

Mr. PUTNAM. Mr. Bloom.

Mr. BLOOM. I have been the Director at DFAS since late May

1999.

Ms. DAVIS. And I’ve been the DFAS Chief Information Officer

since January 2001.

Mr. PUTNAM. Thank you.

As DOD moves forward to implement this enterprise architecture

that we discussed when I had my last opportunity, it’s my understanding that the governance structure that you envision to control

the investments in IT will have multiple boards to effectively oversee the different IT projects. Have you developed some kind of uniform criteria to be used by each board so that they’re operating on

the same page? And do you have that standardized criteria in

place?

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Ms. BOUTELLE. We’re in the process of putting that entire structure in place. We’re working with Team IBM to help us define criteria, and we’re using the domain owners as we’re going through

the process of establishing these governance rules. So we’re making

progress, but it’s not defined and in place yet because again, it’s

a new concept for us.

Mr. PUTNAM. When do you expect it’ll be in place?

Ms. BOUTELLE. I expect that you will see benefits from the investment review process this year, this fiscal year. Will it be perfect? No. We will have some criteria. We will have some guidance

for how the domain owners should go about doing the different levels of reviews, and we’ll go through the first round of reviews of

them taking their inventory, again going through high-dollar systems until they eventually work through that inventory. But I expect that we will have something in place and that we will have

done part of the reviews this fiscal year.

Mr. PUTNAM. Will you use the OMB criteria that is part of the

e-gov initiative and the President’s management initiative? Will

they be your model for making the business case for any IT investment?

Ms. BOUTELLE. You know—it will be a requirement to make a

business case. It will be a requirement—these are the ones that I

know we’ve talked about, and that’s why I feel comfortable saying

that these, I’m pretty sure, will come out in the end; that there’ll

have to be a business case that will show a return on investment

at some period in time based on the scenario of what makes sense.

It will have to comply with the architecture. We’re going to limit

the number of interfaces and extensions, cut reports and things

that—an initiative that’s ongoing, we would allow it to have, because, remember, we want to stay back with the commercial system as much as possible and not customize it.

So there is a group of criteria that we’re working through that

much of it, I would suspect, would conform with what the Federal

enterprise architecture folks are doing.

Mr. PUTNAM. Are you familiar with that?

Ms. BOUTELLE. Not in details on what they’re doing. I’m familiar

with some of the initiatives that they have going on.

Mr. PUTNAM. And will all of you hold them accountable to making those business cases and staying on time and on budget? I

mean, that’s part of the GAO report also, that it keeps getting

waived. And I assume that you’re the people who make that decision; is that correct?

Ms. BOUTELLE. In some cases, as the Director of DFAS said, that

is correct, and we will do a better job of holding folks to those numbers.

Ms. BOUTELLE. I think it’s the process that we put in place that’s

going to force the controls, and that we have criteria defined to

where it’s—removes more of the subjectivity from the decisionmaking process to where there are certain things that we are looking for, and they must be there. You know, I’ve often said that we

know on our stock portfolios when to fold, but we don’t know when

to draw the line on the system investment. We need more defined

criteria, and that’s what we’re working to put in place.

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Mr. PUTNAM. I know that the Pentagon is big, and I know that

it’s unwieldy, and I know that it is slow, and I know that it’s difficult to institute change, and GAO actually specifically cited that,

that a lot of these issues are human challenges as much as they

are technical challenges. But Wal-Mart is big, too, and we heard

testimony last week that you could go to Bentonville, AR, and they

can tell you how many tubes of toothpaste are in their Tyson’s Corner shop, and yet we buy F–16 parts without any regard to who

else in the neighborhood might have the same exact F–16 part that

we could borrow.

And so it is somewhat frustrating that we always set government

aside as being an exception, that government can’t follow these

same procedures, they can’t make the same business case because

they’re different, they’re unique, they have separate issues to deal

with. And to an extent that’s true, but it’s less and less true, and

it becomes more difficult, I think, to defend that position when you

see Fortune 100, Fortune 50 companies that are able to successfully implement these emerging technologies for information technology and logistics and financial management.

The President’s 2004 budget notes that, No. 1, very few IT investments have significantly improved mission performance, few

agencies have plans demonstrating and documenting the linkage

between IT capabilities and business needs, and that many major

IT projects do not meet cost schedule and performance goals. How

many IT investment projects do you have under way? And given

that a lot of them fall into those three categories that the President

mentioned, what process do you have in place to give us some reasonable assurance that the system projects that will be part of the

enterprise architecture will not suffer the same fate?

Ms. BOUTELLE. Part of what we’re putting in place for the architecture is to do the linkage with the strategic plan that has not

been done in the past, just as you mentioned, to where we had not

tied the systems back to what the strategy is. So one of the things

that we have Team IBM working for us is actually to help us lay

in place how to do that linking so that we start at the top of the

Department with the strategy, and we link down through the Department and through the business lines so that we know what

we’re doing, actually goes back and supports the goals and objectives of the Department. So that is a process that we are working

on and going to put in place.

Mr. PUTNAM. How long is Team IBM’s contract for?

Ms. BOUTELLE. We have four 1-year options.

Mr. PUTNAM. And what was the size of that contract?

Ms. BOUTELLE. What is the dollar amount of the contract? It’s

$95 million.

Mr. PUTNAM. Per year?

Ms. BOUTELLE. That is per year, right? The BPA is $95 million,

5 years.

Mr. PUTNAM. At what point, you know, getting back to this issue

of the criteria that you’re working on for governance and the standardization of that criteria, at what point can we hold another subcommittee hearing and you could provide us that criteria?

Ms. BOUTELLE. I would say you could hold one in 6 months, and

we could give you the criteria that we are using. I would say you

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could hold one 6 months after that, and we could give you improved criteria; and 6 months after that, and it would even be better. Again, we are in an infantile state here. We have never done

investment review boards. We have never gone through this process, so it is a learning process for us. And I think, you know, even

GAO acknowledges in their different stages that one goes through

in developing this type of an investment review process that it’s a

growing process.

Mr. PUTNAM. What about the human side of this? Who are your

counterparts in human resources or personnel, and how are you all

connecting to make sure that the culture changes, that the people

are better trained, that they are better informed to make contracting and outsourcing decisions and procurement decisions? What’s

going on in that regard?

Ms. BOUTELLE. You know, when we met with IBM officials—because, remember, we hired Team IBM because IBM had done this

transformation to themself—and we just met with them again a

couple of weeks ago, talked, and some of their senior folks said, you

know, the hardest thing we did was the change management portion of this. Coming up with the business rules and figuring out

how to run the business was not nearly as difficult. And the Department of Defense being so much larger, it is going to be so much

harder, and we’re aware of that.

Our plan is that because we now have this business line domain

focus is that we will be working those issues across the domains.

However, we need an overall change management strategy that ensures that we are starting with a message from the top, and that

this is being sent down throughout the Department of Defense to

all levels, and it’s made at a level to where the individual that’s

receiving the message understand why it’s important to them that

we implement architecture.

So again, you know, we don’t underestimate the difficulty of this.

This change management is probably going to be without a doubt

the hardest part of implementing this architecture.

Mr. PUTNAM. Thank you.

Thank you, Mr. Chairman.

Mr. TURNER. Chairman Putnam was talking about the issue of

accountability, and I just wonder, in looking at the information

that we have, and talking about the corporate information management program, that in 1989 the Department of Defense began the

same program with the intent to implement the standard systems

across DOD. We’ve discussed this several times in this hearing,

and after 8 years and an investment of $20 billion, the effort was

abandoned.

Looking at the issue of accountability, what accountability occurred as a result of that project losing $20 billion? In the private

sector it wouldn’t take the loss of $20 billion for there to be issues

of someone’s performance being held accountable, but during this

hearing, as we discuss the Department of Defense or a program or

a process, really loses the context of there are individuals that have

responsibility. Could you tell me a little bit about that program,

when it was canceled, or what did occur on the issue of accountability?

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Mr. LANDON. I really am unable to speak to this program. I was

not involved with it, and I’m afraid I have no background. Perhaps

one of the others could, but we could try to get you that information.

Mr. TURNER. I would appreciate that, because one of the issues,

you can create all the systems and process and all the great intentions, but if there is no way of enforcement of accountability, you’re

going to again have another project with cost overruns and other

issues where we’re referring abstractly about the Department of

Defense or processes instead of the actual performance of individuals.

And that leads me to the issue of looking at individuals, of whistleblowers or individuals who have information or advice, and programs or projects that need to be curtailed or impacted. What processes do you have in place for someone to go outside of the chain

of command to raise the flag if there’s a problem with a program

or project in efforts to try to save money?

Mr. LANDON. At first blush I would say that one that comes to

mind for me is the DOD hotline. This is a program that protects

the individual, allows them to report abuses, and then provides an

objective investigator to go look and see if those are, in fact, valid.

It is the one that I am most familiar with. However, I think, on

the other side, what we are trying to establish is an atmosphere

where program managers feel free to be able to reveal problems

they’re running into.

You know, none of these individuals do this on their own. They

have the best intentions when they are given a program to manage.

What we are trying to do is establish that atmosphere where

they’re able to come forward and say that they have problems in

developing their program or need guidance or whatever else, and

do that so that people don’t feel like they have to do it under the

cover of darkness.

Mr. BLOOM. At DFAS, we have all the traditional ways, but we

also have a couple of additional things. We’ve established something called Rumor Has It, which you can submit something to me

directly with total anonymity if you so choose, so if there’s a rumor

or a situation that you want to bring to my attention, and you don’t

want your name out there, you can send it through this Rumor Has

It. Of course, everyone has my e-mail address, and there’s not as

much anonymity there, but they can send me an e-mail, and,

frankly, I’ll take phone calls from any DFAS employee that has

something to say to me. Even though we’ve got over 16,000, you

know, I try to make the environment as open as it can be.

Mr. TURNER. Are there any additional questions?

Mr. PUTNAM. Very briefly, if I may.

How frequently is that being used?

Mr. BLOOM. Rumor Has It? I get at least one rumor every day.

So I was on vacation last week. I came back, there were 19 for me

to answer. By the way, I will answer those questions, the ones that

aren’t redundant and the ones that are. I’ve actually got a Web site

that I send out an answer to, but people use it every day.

Mr. PUTNAM. Thank you.

Mr. TURNER. Mr. Ruppersberger. No questions?

I thank you.

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Are there any additional comments or statements that you wish

to include in the record? No?

Well, Chairman Shays had said that before he left, he wanted to

give an opportunity for the—oh, I’m sorry. Mr. Platts is here. Do

you have any questions?

Mr. PLATTS. Thank you, Mr. Chairman. My apologies for the late

arrival. No questions. Look forward to reviewing the testimony and

working with various subcommittees on Government Reform on the

issue of financial accountability and oversight. Thank you.

Mr. TURNER. Thank you.

Chairman Shays, before his departure, had indicated that he

wanted to give the representatives from GAO an additional opportunity to respond or add information to the record if they desired,

so at this time I’ll inquire as to whether or not you would like to

take the table and to give us some additional information as a result of what you have heard.

OK. I want to thank all of our panelists on the second panel. I

will remind both of you that the oath that you took in the proceeding testimony you provided would continue through these comments.

Mr. KUTZ. Just a couple of things I want to mention, because

some of you were not here when we gave our testimony earlier, but

Chairman Shays had talked about the bringing on a Deputy for

Management or Deputy Secretary for Management. That would be

someone that would deal not only with the issues of the information technology, but would be an integrator basically for all of the

areas such as acquisition, logistics, financial management, etc. So

that concept is broader than the IT. And if you look at our highrisk series that was issued, DOD actually has eight areas on the

high-risk list for GAO, so it would be someone who could integrate

all of those various management challenges together.

The other thing I think that would be useful, I know you talked

about it, and Chairman Shays talked about contacting the Appropriations Committee. Back in the mid-1990’s, the Internal Revenue

Service, you may recall, had failure with the tax system modernization, where they spent $3 or $4 billion and had very little to show

for it. One of the things that they put in place with respect to that

was centralized funding from an appropriations standpoint into an

investment management account that the Congress controlled very

tightly. That’s something that you may want to look at here.

Right now, with respect to IT investment, the money for DOD is

all over the place. There’s money being appropriated and used; not

only appropriations, but also working capital funds are using

money also. So one thing that would be worth looking into is sharing with or talking to some of the Appropriations Committee folks

that have dealt with the Internal Revenue Service, Customs and

others, who followed that model.

One other point with respect to the architecture and the architectural effort that they’re doing is the right effort. It’s a good effort.

They’ve make a good attempt, and they’ve made good progress so

far, but that alone does not really solve necessarily the issue of

project management that we’ve talked about here today. These four

individual projects. You could have an architecture that’s been

done properly, etc., but if these four projects are not coming in

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within cost, schedule, and promised capabilities, that is basically

building out the blueprint. You have the blueprint, and you have

building out the blueprint. They need to put in place effective controls over investments.

So as Chairman Putnam asked them for the answer to how many

projects were within the 90 percent, it will be interesting to see

what the answer is, because we haven’t seen a lot of success stories

in the IT management area here. And again, we appreciate working with both of these subcommittees on these issues, and the DOD

has been very good to work with, and I believe, again, that the people there are working very hard. They’re trying to do the right

thing, and they have made some progress, but, again, we’re going

from a situation of uncontrolled proliferation of systems to a situation hopefully of strong control over the IT systems at DOD.

Mr. SMITH. Mr. Shays, before he left, raised the question about

the DCD/DCW cost/benefit economic analysis. The one thing I’d

like to clarify that Ms. Davis did address is that within our final

report, we did revise the report based on comments that came back

from DOD to say that there was a cost/benefit analysis. What we

were provided was as of October. It was a draft document, and it

was only for the DCD. The report now goes on to say we have yet

to see any type of justification done for the DCD/DCW, and the report was revised based on DOD’s comments. We did clarify that in

our final report.

Mr. TURNER. Thank you.

Do any members of the committee have any questions of the panelists?

Mr. PUTNAM. Mr. Chairman, I would just point out that Chairman Platts is here, who has tremendous responsibility over financial management and e-government. My jurisdiction as chairman of

the Subcommittee on Technology and Information Policy certainly

has a tremendous interest in this issue, and you’re well acquainted

with Chairman Shays’ interest in this, so you have three subcommittee chairman who have made it very clear that this is on

their radar screen.

And I also serve on the Budget Committee, and when I got to

Congress, we had allegedly projected $5 trillion in surpluses, and

now we’re in deficit for several years to come at best, and I feel

guilty about that. And there’s a lot of circumstances that led to

that are beyond my control. I know that you’re concerned about

these things, but it is very unsettling how much money the Department of Defense and other departments—but the Department of

Defense by virtue of it’s size and the level of its appropriation certainly is in a league of its own, and it’s something that we all three

of us, and others, are extremely interested in seeing corrected in

the near future.

Mr. TURNER. Mr. Ruppersberger.

Chairman Platts.

Gentlemen, thank you for participating and for your information

provided. Obviously this is an important topic for us, and we thank

you. We will be adjourned.

[Whereupon, at 3:30 p.m., the joint subcommittee was adjourned.]

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