Financial Management Systems: DHS Has an Opportunity to Incorporate Best Practices in Modernization Efforts
Published: 2006-03-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over the years, GAO has reported on various agencies' financial management system implementation failures. GAO's recent report (GAO-06-184) discusses some of the most significant problems previously identified with agencies' financial management system modernization efforts. For today's hearing, GAO was asked to provide its perspectives on the importance of the Department of Homeland Security (DHS) following best practices in developing and implementing its new financial management systems and avoiding the mistakes of the past. GAO's testimony (1) discusses the recurring problems identified in agencies' financial management systems development and implementation efforts, (2) points out key financial management system modernization challenges at DHS, and (3) highlights the building blocks that form the foundation for successful financial management system implementation efforts.
section_title: What GAO Found
paragraphs: GAO's work and that of agency inspectors general over the years has shown that agencies have failed to employ accepted best practices in systems development and implementation (commonly referred to as disciplined processes) that can collectively reduce the risk associated with implementing financial management systems. GAO's recent report identified key causes of failures within several recurring themes including (1) disciplined processes, such as requirements management, testing, and project management; and (2) human capital management, such as workforce planning, human resources, and change management. Prior reports have identified costly systems implementation failures attributable to problems in these areas at agencies across the federal government. DHS faces unique challenges in attempting to develop integrated financial management systems across the breadth of such a large and diverse department. DHS inherited a myriad of redundant financial management systems from 22 diverse agencies and about 100 resource management systems. Among the weaknesses identified in prior component financial audits were insufficient internal controls or processes to reliably report financial information such as revenue, accounts receivable, and accounts payable; significant system security deficiencies; financial systems that required extensive manual processes to prepare financial statements; and incomplete policies and procedures necessary for conducting basic financial management activities. In August 2003, DHS began a program to consolidate and integrate DHS financial accounting and reporting systems. DHS officials said they recently decided to develop a new strategy for the planned financial management systems integration program, referred to as eMerge2, because the prior strategy was not meeting its performance goals and timeline. DHS's revised strategy will allow DHS components to choose from an array of existing financial management shared service providers. Based on industry best practices, GAO identified four key concepts that will be critical to DHS's ability to successfully complete its planned migration to shared service providers. Careful consideration of these four concepts, each one building upon the next, will be integral to the success of DHS's strategy. The four concepts are developing a concept of operations, defining standard business processes, developing a strategy for implementing DHS's shared services approach across the department, and defining and effectively implementing disciplined processes necessary to properly manage the specific projects. With DHS at an important crossroads in implementing financial management systems, it has an excellent opportunity to use these building blocks to form a solid foundation on which to base its efforts and avoid the problems that have plagued so many other federal agencies.

section_title: Letter
paragraphs: It is a pleasure to be here today to participate in this joint oversight  hearing on the Department of Homeland Security’s (DHS) ongoing efforts  to effectively manage its information technology (IT) projects. Modern  financial management systems are a critical component to instituting  strong financial management as called for by the Chief Financial Officers  (CFO) Act of 1990, the Federal Financial Management Improvement Act of  1996 (FFMIA), and other legislation. As we testified in November 2005,  agencies continue to struggle with developing and implementing  integrated systems that achieve expected functionality within cost and  timeliness goals. While most CFO Act agencies have obtained clean (or  unqualified) audit opinions on their financial statements, the underlying  financial systems remain a serious problem. Hearings such as this one  today foster meaningful financial management reform.
Over the years, we have reported on various agencies’ financial  management system implementation failures. Our recent report, which  was prepared at the request of the Subcommittee on Government  Management, Finance, and Accountability, House Committee on  Government Reform, discusses some of the most significant problems and  observations we identified with agencies’ financial management system  modernization efforts. Today, we would like to provide our perspectives  on the importance of DHS following best practices in developing and  implementing its new financial management systems. Specifically, we  would like to    discuss the recurring problems we and others have identified in agencies’  financial management systems development and implementation efforts,   point out key financial management system modernization challenges at  DHS, and    highlight the building blocks that form the foundation for successful  financial management system implementation efforts.
Our statement is based upon our recently issued report, as well as our  previous reports and testimonies, which were performed in accordance  with U.S. generally accepted government auditing standards. We have not  performed a detailed review of DHS’s financial management  transformation efforts.
subsections: section_title: Lessons Learned in Recurring Failures of Federal Agency Financial Management System Implementations
paragraphs: In our recent report, we summarize many of the agencies’ financial  management system implementation failures that have been previously  reported by us and inspectors general (IG). Our work and that of the IGs  over the years has shown that agencies have failed to employ accepted  best practices in systems development and implementation (commonly  referred to as disciplined processes) that can collectively reduce the risk  associated with implementing financial management systems. In our  report, we identified key causes of failures within several recurring  themes, including disciplined processes and human capital management.  DHS would be wise to study the lessons learned through other agencies’  costly failures and consider building a strong foundation for successful  financial management system implementation, as we will discuss later in  our testimony.
subsections: section_title: Disciplined Processes Have Not Been Fully Employed
paragraphs: From our review of over 40 prior reports, we identified weaknesses in the  following areas of disciplined processes.
Requirements management. Ill-defined or incomplete requirements  have been identified by many system developers and program managers as  a root cause of system failure. It is critical that requirements—functions  the system must be able to perform—be carefully defined and flow from  the concept of operations (how the organization’s day-to-day operations  are or will be carried out to meet mission needs). In our previous work, we  have found agencies with a lack of a concept of operations, vague and  ambiguous requirements, and requirements that are not traceable or  linked to business processes.
Testing. Complete and thorough testing is essential to provide reasonable  assurance that new or modified systems will provide the capabilities in the  requirements. Testing is the process of executing a program with the  intent of finding errors. Because requirements provide the foundation for  system testing, they must be complete, clear, and well documented to  design and implement an effective testing program. Absent this, an  organization is taking a significant risk that substantial defects will not be  detected until after the system is implemented. Industry best practices  indicate that the sooner a defect is recognized and corrected, the cheaper  it is to fix. In our work, we have found flawed test plans, inadequate timing  of testing, and ineffective systems testing.
Data conversion. In its white paper on financial system data conversion,  the Joint Financial Management Improvement Program (JFMIP)  identified data conversion as one of the critical tasks necessary to  successfully implement a new financial system. JFMIP also noted that if  data conversion is done right, the new system has a much greater  opportunity for success. On the other hand, converting data incorrectly or  entering unreliable data from a legacy system has lengthy and long-term  repercussions. The adage “garbage in, garbage out” best describes the  adverse impact. Examples of problems we have reported on include  agencies that have not properly developed and implemented good data  conversion plans, have planned the data conversion too late in the project,  and have not reconciled account balances.
Risk management. According to leading systems acquisition  organizations, risk management is a process for identifying potential  problems before they occur and adjusting the acquisition to decrease the  chance of their occurrence. Risks should be identified as early as possible  and a risk management process should be developed and put in place.  Risks should be identified, analyzed, mitigated, and tracked to closure.  Effectively managing risks is one way to minimize the chances of project  cost, schedule, and performance problems from occurring. We have  reported that agencies have not fully implemented effective risk  management practices, including shortcomings in identifying and tracking  risks.
Project management. Effective project management is the process for  planning and managing all project-related activities, such as defining how  components are interrelated, defining tasks, estimating and obtaining  resources, and scheduling activities. Project management allows the  performance, cost, and schedule of the overall program to be continually  measured, compared with planned objectives, and controlled. We have  reported on a number of project management problems including  inadequate project management structure, schedule-driven projects, and  lack of performance metrics and oversight.
Quality assurance. Quality assurance provides independent assessments  of whether management process requirements are being followed and  whether product standards and requirements are being satisfied. This  process includes, among other things, the use of independent verification  and validation (IV&V). We and others have reported on problems related  to agencies’ use of IV&V including specific functions not being performed  by the IV&V, the IV&V contractor not being independent, and IV&V  recommendations not being implemented.
Inadequate implementation of disciplined processes can manifest itself in  many ways when implementing a financial management system. While full  deployment has been delayed at some agencies, specific functionality has  been delayed or flawed at other agencies. The following examples  illustrate some of the recurring problems related to the lack of disciplined  processes in implementing financial management systems.
In May 2004, we reported significant flaws in requirements management  and testing that adversely affected the initial development and  implementation of the Army’s Logistics Modernization Program (LMP), in  which the Army estimated that it would invest about $1 billion. These  flaws also hampered efforts to correct the operational difficulties  experienced at the Tobyhanna Army Depot. In June 2005, we reported  that the Army had not effectively addressed its requirements management  and testing problems, and data conversion weaknesses had hampered the  Army’s ability to address the problems that needed to be corrected before  the system could be fielded to other locations. The Army lacked  reasonable assurance that (1) system problems experienced during the  initial deployment and causing the delay of future deployments had been  corrected and (2) LMP was capable of providing the promised system  functionality. Subsequent deployments of the system have been delayed.
We reported in February 2005 that our experience with major systems  acquisitions, such as the Office of Personnel Management’s (OPM)  Retirement Systems Modernization (RSM) program, has shown that having  sound disciplined processes in place increases the likelihood of the  acquisitions meeting cost and schedule estimates as well as performance  requirements. However, we found that many of the processes in these  areas for RSM were not sufficiently developed, were still under  development, or were planned for future development. For example, OPM  lacked needed processes for developing and managing requirements,  planning and managing project activities, managing risks, and providing  sound information to investment decision makers. Without these  processes in place, RSM was at increased risk of not being developed and  delivered on time and within budget and falling short of promised  capabilities.
In August 2004, the Department of Veterans Affairs (VA) IG reported that  the effect of transferring inaccurate data to VA’s new core financial system  at a pilot location interrupted patient care and medical center operations.  This raised concerns that similar conversion problems would occur at  other VA facilities if the conditions identified were not addressed and  resolved nationwide prior to roll out. Some of the specific conditions the  IG noted were that contracting and monitoring of the project were not  adequate, and the deployment of the new system encountered multiple  problems, including those related to software testing, data conversion and  system interfaces, and project management. As a result of these problems,  patient care was interrupted by supply outages and other problems. The  inability to provide sterile equipment and needed supplies to the operating  room resulted in the cancelation of 81 elective surgeries for a week in both  November 2003 and February 2004. In addition, the operating room was  forced to operate at two-thirds of its prior capacity. Because of the serious  nature of the problems raised with the new system, VA management  decided to focus on transitioning back to the previous financial  management software at the pilot location and assembled a senior  leadership team to examine the results of the pilot and make  recommendations to the VA Secretary regarding the future of the system.
section_title: Human Capital Management Problems Impede Financial Systems Development and Deployment
paragraphs: We are concerned that federal agencies’ human capital problems are  eroding the ability of many agencies—and threatening the ability of  others—to perform their IT missions economically, efficiently, and  effectively. For example, we found that in the 1990s, the initial rounds of  downsizing were set in motion without considering the longer-term effects  on agencies’ IT performance capacity. Additionally, a number of individual  agencies drastically reduced or froze their hiring efforts for extended  periods. Consequently, following a decade of downsizing and curtailed  investments in human capital, federal agencies currently face skills,  knowledge, and experience imbalances, especially in their IT workforces.  Without corrective action, these imbalances will worsen, especially in light  of the numbers of federal civilian workers becoming eligible to retire in  the coming years. In this regard, we are emphasizing the need for  additional focus on the following three key elements of human capital  management.
Strategic workforce planning. Having staff with the appropriate skills is  key to achieving financial management improvements, and managing an  organization’s employees is essential to achieving results. It is important  that agencies incorporate strategic workforce planning by (1) aligning an  organization’s human capital program with its current and emerging  mission and programmatic goals and (2) developing long-term strategies  for acquiring, developing, and retaining an organization’s total workforce  to meet the needs of the future. This incorporates a range of activities  from identifying and defining roles and responsibilities, to identifying team  members, to developing individual competencies that enhance  performance. We have reported on agencies without a sufficient human  capital strategy or plan, skills gap analysis, or training plans.
Human resources. Having sufficient numbers of people on board with  the right mix of knowledge and skills can make the difference between  success and failure. This is especially true in the IT area, where  widespread shortfalls in human capital have contributed to demonstrable  shortfalls in agency and program performance. We have found agency  projects with significant human resource challenges, including addressing  personnel shortages, filling key positions, and developing and retaining  staff with the required competencies.
Change management. According to leading IT organizations,  organizational change management is the process of preparing users for  the business process changes that will accompany implementation of a  new system. An effective organizational change management process  includes project plans and training that prepare users for impacts the new  system might have on their roles and responsibilities and a process to  manage those changes. We have reported on various problems with  agencies’ change management, including transition plans not being  developed, business processes not being reengineered, and customization  not being limited.
The following examples illustrate some of the recurring problems related  to human capital management in implementing financial management  systems.
We first reported in February 2002 that the Internal Revenue Service  (IRS) had not defined or implemented an IT human capital strategy for its  Business Systems Modernization (BSM) program and recommended that  IRS address this weakness. In June 2003, we reported that IRS had made  important progress in addressing our recommendation, but had yet to  develop a comprehensive multiyear workforce plan. IRS also had not  hired, developed, or retained sufficient human capital resources with the  required competencies, including technical skills, in specific mission  areas. In September 2003, the Treasury Inspector General for Tax  Administration reported that IRS’s Modernization and IT Services  organization had made significant progress in developing its human capital  strategy but had not yet (1) identified and incorporated human capital  asset demands for the modernized organization, (2) developed detailed  hiring and retention plans, or (3) established a process for reviewing the  human capital strategy development and monitoring its implementation.  We most recently reported in July 2005 that IRS had taken some steps in  the right direction. However, until IRS fully implements its strategy, it will  not have all of the necessary IT knowledge and skills to effectively manage  the BSM program or to operate modernized systems. Consequently, the  risk of BSM program and project cost increases, schedule slippages, and  performance problems is increased.
We reported, in September 2004, that staff shortages and limited strategic  workforce planning resulted in the Department of Health and Human  Services (HHS) not having the resources needed to effectively design and  operate its new financial management system. HHS had taken the first  steps in strategic workforce planning. For example, the Centers for  Disease Control and Prevention (CDC), where the first deployment was  scheduled, was the only operating division that had prepared a  competency report, but a skills gap analysis and training plan for CDC had  not been completed. In addition, many government and contractor  positions on the implementation project were not filled as planned. While  HHS and the systems integrator had taken measures to acquire additional  human resources for the implementation of the new financial management  system, we concluded that scarce resources could significantly jeopardize  the project’s success and lead to several key deliverables being  significantly behind schedule. In September 2004, HHS decided to delay its  first scheduled deployment at CDC by 6 months in order to address these  and other issues.
section_title: DHS Faces Serious Financial Management Challenges
paragraphs: DHS faces unique challenges in attempting to develop integrated financial  management systems across the breadth of such a large and diverse  department. DHS was established by the Homeland Security Act of 2002,  as the 15th Cabinet Executive Branch Department of the United States  government. DHS inherited a myriad of redundant financial management  systems from 22 diverse agencies along with 180,000 employees, about 100  resource management systems, and 30 reportable conditions identified in  prior component financial audits. Of the 30 reportable conditions, 18 were  so severe they were considered material weaknesses. Among these  weaknesses were insufficient internal controls or processes to reliably  report financial information such as revenue, accounts receivable, and  accounts payable; significant system security deficiencies; financial  systems that required extensive manual processes to prepare financial  statements; and incomplete policies and procedures necessary to  complete basic financial management activities.
DHS received a disclaimer of opinion on its financial statements for fiscal  year 2005, and the independent auditors also reported that DHS’s  financial management systems did not substantially comply with the  requirements of FFMIA. The disclaimer was primarily due to financial  reporting problems at five components. The five components include  Immigration and Customs Enforcement (ICE), the United States Coast  Guard (Coast Guard), State and Local Government Coordination and  Preparedness (SLGCP), the Transportation Security Administration  (TSA), and Emergency Preparedness and Response (EPR). Further, ICE is  an accounting service provider for other DHS components, and it failed to  adequately maintain both its own accounting records and those of other  DHS components during fiscal year 2005.
The auditors’ fiscal year 2005 report discusses 10 material weaknesses,  two other reportable conditions in internal control, and instances of  noncompliance with seven laws and regulations. Among the 10 material  weaknesses were inadequate financial management and oversight at DHS  components, primarily ICE and Coast Guard; decentralized financial  reporting at the component level; significant general IT and application  control weaknesses over critical financial and operational data; and the  lack of accurate and timely reconciliation of fund balance with treasury  accounts. The results of the auditors’ tests of fiscal year 2005 compliance  with certain provisions of laws, regulations, contracts, and grant  agreements disclosed instances of noncompliance. The DHS auditors  reported instances of noncompliance with    31 U.S.C. § 3512(c),(d), commonly known as the Federal Managers’  Financial Integrity Act of 1982 (FMFIA);  the Federal Financial Management Improvement Act of 1996 (FFMIA),  Pub. L. No. 104-208, div. A, § 101(f), title VIII, 110 Stat. 3009, 3009-389  (Sept. 30, 1996);  the Federal Information Security Management Act of 2002 (FISMA), Pub.  L. No. 107-347, title III, 116 Stat. 2899, 2946 (Dec. 17, 2002);  the Single Audit Act, as amended (codified at 31 U.S.C. §§ 7501-7507), and  other laws and regulations related to OMB Circular No. A-50, Audit  Follow-up, as revised (Sept. 29, 1982); the Improper Payments Information Act of 2002, Pub. L. No. 107-300, 116  Stat. 2350 (Nov. 26, 2002); the Department of Homeland Security Financial Accountability Act of  2004, Pub. L. No. 108-330, 118 Stat. 1275 (Oct. 16, 2004); and  the Government Performance and Results Act of 1993 (GPRA), Pub. L. No.  103-62, 107 Stat. 285 (Aug. 3, 1993).
Although DHS inherited many of the reportable conditions and  noncompliance issues discussed above, the department’s top management,  including the CFO, is ultimately responsible for ensuring that progress is  made in the area of financial management.
In August 2003, DHS began the “electronically Managing enterprise  resources for government effectiveness and efficiency” (eMerge) program  at an estimated cost of $229 million. The eMerge that the acquisition of eMerge was in the early stages and  continued focus and follow through, among other things, would be  necessary for it to be successful.
According to DHS officials, because the project was not meeting its  performance goals and timeline, DHS officials began considering whether  to continue the project and in Spring 2005 started looking at another  strategy. DHS officials told us they decided to change the strategy for its  eMergeacquisition and development activities on eMerge had stopped and the  blanket purchase agreement with the systems integrator expired. DHS  officials added that the eMerge using a shared services approach, which  allows its components to choose among three DHS providers of financial  management services and the Department of the Treasury’s Bureau of the  Public Debt, which was identified by OMB as a governmentwide financial  management center of excellence. DHS officials told us that although a  departmentwide concept of operations and migration plan were still under  development, they expected progress to be made in the next 5 years. As  we will discuss later, a departmentwide concept of operations document  would help DHS and others understand such items as how DHS will  migrate the various entities to these shared service providers and how it  will obtain the departmental information necessary to manage the agency  from these disparate operations. DHS officials acknowledged that they  needed to first address the material weaknesses at the proposed shared  service providers before component agencies migrate to them.
section_title: The Building Blocks of Successful Financial Management System Implementations
paragraphs: The key for federal agencies, including DHS, to avoid the long-standing  problems that have plagued financial management system improvement  efforts is to address the foremost causes of those problems and adopt  solutions that reduce the risks associated with these efforts to acceptable  levels. Although it appears that DHS will adopt a shared services approach  to meet its needs for integrated financial management systems,  implementing this approach will be complex and challenging, making the  adoption of best practices even more important for this undertaking.  Based on industry best practices, we identified four key concepts that will  be critical to DHS’s ability to successfully complete its planned migration  to shared service providers. Careful consideration of these four concepts,  each one building upon the next, will be integral to the success of DHS’s  strategy. The four concepts are (1) developing a concept of operations,   (2) defining standard business processes, (3) developing a migration  strategy for DHS components, and (4) defining and effectively  implementing disciplined processes necessary to properly manage the  specific projects. We will now highlight the key issues to be considered for  each of the four areas.
subsections: section_title: Concept of Operations Provides Foundation
paragraphs: As we discussed previously, a concept of operations defines how an  organization’s day-to-day operations are (or will be) carried out to meet  mission needs. The concept of operations includes high-level descriptions  of information systems, their interrelationships, and information flows. It  also describes the operations that must be performed, who must perform  them, and where and how the operations will be carried out. Further, it  provides the foundation on which requirements definitions and the rest of  the systems planning process are built. Normally, a concept of operations  document is one of the first documents to be produced during a  disciplined development effort and flows from both the vision statement  and the enterprise architecture. According to the Institute of Electrical and  Electronic Engineers (IEEE) standards, a concept of operations is a user- oriented document that describes the characteristics of a proposed system  from the users’ viewpoint. The key elements that should be included in a  concept of operations are major system components, interfaces to  external systems, and performance characteristics such as speed and  volume.
Another key element of a concept of operations is a transition strategy that  is useful for developing an understanding of how and when changes will  occur. Not only is this needed from an investment management point of  view, it is a key element in the human capital problems discussed  previously that revolved around change management strategies.  Describing how to implement DHS’s approach for using shared service  providers for its financial management systems, as well as the process that  will be used to deactivate legacy systems that will be replaced or  interfaced with a new financial management system, are key aspects that  need to be addressed in a transition strategy.
Key Issues for DHS to Consider    What is considered a financial management system? Are all the components using a  standard definition?
Who will be responsible for developing a DHS-wide concept of operations, and what  process will be used to ensure that the resulting document reflects the  departmentwide solution rather than individual component agency stove-piped  efforts?
How will DHS’s concept of operations be linked to its enterprise architecture?
How can DHS obtain reliable information on the costs of its financial management  systems investments?
section_title: Standard Business Processes Promote Consistency
paragraphs: Business process models provide a way of expressing the procedures,  activities, and behaviors needed to accomplish an organization’s mission  and are helpful tools to document and understand complex systems.  Business processes are the various steps that must be followed to perform  a certain activity. For example, the procurement process would start when  the agency defines its needs, and issues a solicitation for goods or  services, and would continue through contract award, receipt of goods  and services, and would end when the vendor properly receives payment.  The identification of preferred business processes would be critical for  standardization of applications and training and portability of staff.
To maximize the success of a new system acquisition, organizations need  to consider the redesign of current business processes. As we noted in our  Executive Guide: Creating Value Through World-class Financial  Management, leading finance organizations have found that productivity  gains typically result from more efficient processes, not from simply  automating old processes. Moreover, the Clinger-Cohen Act of 1996  requires agencies to analyze the missions of the agency and, based on the  analysis, revise mission-related and administrative processes, as  appropriate, before making significant investments in IT used to support  those missions. Another benefit of what is often called business process  modeling is that it generates better system requirements, since the  business process models drive the creation of information systems that fit  in the organization and will be used by end users. Other benefits include  providing a foundation for agency efforts to describe the business  processes needed for unique missions, or developing subprocesses to  support those at the departmentwide level.
Key Issues for DHS to Consider    Who will be responsible for developing DHS-wide standard business processes that  meet the needs of its component agencies?
How will the component agencies be encouraged to adopt new processes, rather  than selecting other methods that result in simply automating old ways of doing  business?
How will the standard business processes be implemented by the shared service  providers to provide consistency across DHS?
What process will be used to determine and validate the processes needed for DHS  agencies that have unique needs?
section_title: Strategy for Implementing the Financial Management Shared Services Approach Will Be Key
paragraphs: Although DHS has a goal of migrating agencies to a limited number of  shared service providers, it has not yet articulated a clear and measurable  strategy for achieving this goal. In the context of migrating to shared  service providers, critical activities include (1) developing specific criteria  for requiring component agencies to migrate to one of the providers rather  than attempting to develop and implement their own stove-piped business  systems; (2) providing the necessary information for a component agency  to make a selection of a shared service provider for financial management;  (3) defining and instilling new values, norms, and behaviors within  component agencies that support new ways of doing work and  overcoming resistance to change; (4) building consensus among  customers and stakeholders on specific changes designed to better meet  their needs; and (5) planning, testing, and implementing all aspects of the  transition from one organizational structure and business process to  another.
Finally, sustained leadership will be key to a successful strategy for  moving DHS components towards consolidated financial management  systems. In our Executive Guide: Creating Value Through World-class  Financial Management, we found that leading organizations made  financial management improvement an entitywide priority by, among  other things, providing clear, strong executive leadership. We also  reported that making financial management a priority throughout the  federal government involves changing the organizational culture of federal  agencies. Although the views about how an organization can change its  culture can vary considerably, leadership (executive support) is often  viewed as the most important factor in successfully making cultural  changes. Top management must be totally committed in both words and  actions to changing the culture, and this commitment must be sustained  and demonstrated to staff. As pressure mounts to do more with less, to  increase accountability, and to reduce fraud, waste, abuse, and  mismanagement, and efforts to reduce federal spending intensify,  sustained and committed leadership will be a key factor in the successful  implementation of DHS’s financial management systems.
Key Issues for DHS to Consider    What guidance will be provided to assist DHS component agencies in adopting a  change management strategy that reduces the risks of moving to a shared service  provider?
What processes will be put in place to ensure that individual component agency  financial management system investment decisions focus on the benefits of standard  processes and shared service providers?
What process will be used to facilitate the decision-making process used by  component agencies to select a provider?
How will component agencies incorporate strategic workforce planning in the  implementation of the shared service provider approach?
section_title: Disciplined Processes Will Help Ensure Successful Implementation
paragraphs: Once the concept of operations and standard business processes have  been defined and a migration strategy is in place, the use of disciplined  processes, as discussed previously, will be a critical factor in helping to  ensure that the implementation is successful. The key to avoiding long- standing implementation problems is to provide specific guidance to  component agencies for financial management system implementations,  incorporating the best practices identified by the Software Engineering  Institute, the IEEE, the Project Management Institute, and other experts  that have been proven to reduce risk in implementing systems. Such  guidance should include the various disciplined processes such as  requirements management, testing, data conversion and system interfaces,  risk and project management, and related activities, which have been  problematic in the financial systems implementation projects we and  others have reviewed.
Disciplined processes have been shown to reduce the risks associated  with software development and acquisition efforts to acceptable levels and  are fundamental to successful system implementations. The principles of  disciplined IT systems development and acquisition apply to shared  services implementation, such as that contemplated by DHS. A disciplined  software implementation process can maximize the likelihood of  achieving the intended results (performance) within established resources  (costs) on schedule. For example, disciplined processes should be in place  to address the areas of data conversion and interfaces, two of the many  critical elements necessary to successfully implement a new system—the  lack of which have contributed to the failure of previous agency efforts.  Further details on disciplined processes can be found in appendix III of  our recently issued report.
Key Issues for DHS to Consider    How can existing industry standards and best practices be incorporated into DHS- wide guidance related to financial management system implementation efforts,  including migrating to shared service providers?
What actions will be taken to reduce the risks and costs associated with data  conversion and interface efforts?
What oversight process will be used to ensure that modernization efforts effectively  implement the prescribed policies and procedures?
section_title: Concluding Observations
paragraphs: In closing, the best practices we identified are interrelated and  interdependent, collectively providing an agency with a better outcome for  its system deployment—including cost savings, improved service and  product quality, and ultimately, a better return on investment. The  predictable result of DHS and other agencies not effectively addressing  these best practices is projects that do not meet cost, schedule, and  performance objectives. There will never be a 100 percent guarantee that a  new system will be fully successful from the outset. However, risk can be  managed and reduced to acceptable levels through the use of disciplined  processes, which in short represent best practices that have proven their  value in the past. We view the application of disciplined processes to be  essential for DHS’s systems modernization efforts. Based on industry best  practices, the following four concepts would help ensure a sound  foundation for developing and implementing a DHS-wide solution for the  complex financial management problems it currently faces: (1) developing  a concept of operations that expresses DHS’s view of financial  management and how that vision will be realized, (2) defining standard  business processes, (3) developing an implementation strategy, and   (4) defining and effectively implementing applicable disciplined processes.  If properly implemented, the best practices discussed here today and in  our recently issued report will help reduce the risk associated with a  project of this magnitude and importance to an acceptable level. With DHS  at an important crossroads in the implementation of the eMergefoundation on which to base its efforts and avoid the problems that have  plagued so many other federal agencies faced with the same challenge.
Mr. Chairmen, this concludes our prepared statement. We would be happy  to respond to any questions you or other Members of the Subcommittees  may have at this time.
section_title: Contacts and Acknowledgments
paragraphs: For information about this testimony, please contact McCoy Williams,  Director, Financial Management and Assurance, at (202) 512-9095 or at  williamsm1@gao.gov, or Keith A. Rhodes, Chief Technologist, Applied  Research and Methods, who may be reached at (202) 512-6412 or at  rhodesk@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this  testimony. Individuals who made key contributions to this testimony  include Kay Daly, Assistant Director; Chris Martin, Senior-Level  Technologist; Francine DelVecchio; Mike LaForge; and Chanetta Reed.  Numerous other individuals made contributions to the GAO reports cited  in this testimony.
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