Customs’ responsibility includes (1) enforcing the laws governing the flow of goods and persons across the borders of the United States and (2) assessing and collecting duties, taxes, and fees on imported merchandise. To speed the processing of imports and improve compliance with trade laws, the Congress in 1993 enacted legislation that enabled Customs to streamline import processing through automation. The legislation also eliminated certain legislatively mandated paper requirements, allowing Customs to move from a paper-intensive to an automated import environment. Further, it required Customs to establish NCAP and specified critical functions that this program must provide, including the ability to electronically file import entries at remote locations and process drawback claims. In response to the authorizing legislation, Customs launched a major initiative in 1994 to reorganize the agency, streamline operations, and modernize the automated systems that support operations. In the process, Customs identified its core business processes as trade compliance (imports), outbound goods (exports), and passengers. In 1992, prior to redesigning its operations, Customs decided to move from centralized to distributive computing and selected a suite of hardware, software, and telecommunications products to enable it to do so. Customs refers to its effort to move to decentralized computing using these products as the Customs Distributed Computing for the Year 2000 (CDC-2000) project. The agency plans to implement ACE and its other modernized systems applications on these products. According to Customs, as of October 1, 1995, it had spent $63 million purchasing these products including upgrading its personal computers, installing local area networks, and acquiring minicomputers and related peripherals. Although no detailed analysis has been prepared, the CDC-2000 project director estimated that when completed, total purchases could reach $500 million. In January 1995, Customs hired Gartner Group Consulting Services to review the adequacy of this approach, and the contractor issued its report in April 1995. About this same time, Customs engaged another contractor—IBM Consulting Group—to determine whether the agency was technically capable of developing ACE. IBM reported its findings in February 1995. Customs’ strategy for implementing NCAP consists of three initiatives. First, Customs is redesigning the import process to better meet customer needs and improve operational efficiency and effectiveness. In doing so, the agency identified and prioritized the needs of its internal and external customers involved in import processing. Using this information, Customs determined how the new import process will work and is testing this new process at selected ports of entry. Customs plans to complete the definition of its redesigned import process by September 1997. Second, Customs is developing its new automated import processing system (ACE) applications to support the new import process and comply with NCAP-mandated functions. Customs is in the early stages of system development. Specifically, the agency has recently issued user requirements and is in the process of determining functional requirements. Customs estimates that when completed, the system will cost $125 million over its 10-year planned life. As of March 1996, Customs had spent $25 million on ACE. Customs plans to begin deploying ACE in October 1998. Finally, until ACE is deployed, Customs plans to enhance its existing import processing system—the Automated Commercial System—which operates in the existing centralized computing environment, to provide selected NCAP-mandated functions critical to meeting agency and trade community needs. For example, Customs is modifying this system to allow importers to file documentation at a port of entry other than where the goods are to arrive or be examined. Rather than wait for this function to be deployed with ACE, Customs plans to add this function to (1) facilitate inspections and import processing and (2) reduce the importers’ administrative burden by eliminating the need of having importer staff at the port of entry. Customs is currently testing this capability with seven importers at selected locations. Customs is also enhancing its current Automated Commercial System to provide electronic filing capabilities for drawback claims. To date, Customs has modified the system to enable electronic (1) filing of such claims by the trade community and (2) comparison of key information on drawback claims to the original import entries. Customs also plans to improve its controls over duplicate and excessive drawback payments, which we previously noted were a problem, by enhancing this system to maintain a cumulative record of drawback amounts paid against individual line items on import entries. This enhancement is scheduled to be completed by October 1997. In implementing its NCAP strategy, Customs has not adhered to strategic information management best practices that help organizations (1) mitigate the risks associated with modernizing automated systems and (2) better position themselves to achieve success. Specifically, Customs did not (1) conduct the requisite analyses (e.g., cost-benefit, feasibility, alternatives) before committing to the CDC-2000 project, (2) redesign its import and other business processes before the agency selected the hardware for ACE and other systems, (3) manage ACE as an investment, and (4) designate strict accountability for ensuring that it successfully incorporates all NCAP-mandated functions into the agency’s modernization effort. Organizations that have successfully modernized operations and systems use a structured approach to identify the architecture that most efficiently and effectively meets their information needs. First, they redesign their old business processes. Then they analyze the new processes to identify (1) the information needs of the entire organization and (2) alternative ways of meeting them, including consideration of costs and benefits. Finally, the organizations use this analysis to select an optimal businesswide configuration, which specifies where and how processing will occur and identifies the hardware, software, telecommunications, and other elements needed to support new automated systems. This configuration is commonly referred to as an architecture and serves as a guide for modernizing automated systems. Organizations that do not follow this disciplined approach risk (1) automating the wrong processes and (2) developing systems that do not function well or that cannot be readily integrated with other systems. Consequently, the agency may develop systems that do not enhance the agency’s mission performance or that reach only a fraction of their potential to do so. However, Customs selected its CDC-2000 approach for ACE and other systems without using this disciplined approach. Specifically, the agency began buying minicomputers, software, and other equipment to support decentralized processing in 1993, but did not start to redesign its first critical business process (imports) until late 1994 and the other two processes (passenger, exports) until January and August 1995. In addition, Customs does not plan to complete these redesign efforts until September 1997, October 1996, and December 1996, respectively. In formulating the CDC-2000 project, Customs did not identify the information needs of the entire organization and consider alternative ways of meeting them as well as the respective costs and benefits. These shortcomings were also reported by Gartner. In this regard, the contractor stated that Customs’ selected products were primarily a “buy list” and were largely identified without taking into consideration the information needs of agency processes and systems. While Gartner stated that “the CDC-2000 architecture is, in general, valid and reasonable,” Gartner recommended that Customs use a disciplined approach to fully identify its needs and only then select products to meet those needs. Customs officials said they had selected the products included in the CDC-2000 initiative before the import process was redesigned because they needed to move from their current centralized system to decentralized processing and believed that the products selected would meet any future system needs. They also said that, at the time of selection, they did not believe a rigorous supporting analysis was needed because the products chosen were widely used by industry. Further, although CDC-2000 was adopted over 4 years ago, Customs does not believe it has wasted its time and resources because, according to the agency, only $4 million of the $63 million CDC-2000 funds spent to date have been used to buy minicomputers, software, and other equipment to support decentralized processing. Customs officials noted that, to date, $59 million has been used to upgrade and install personal computers and local area networks, which needed to be acquired regardless of the architecture that was ultimately formulated. We recognize Customs’ need to improve office automation using personal computers and local area networks. However, Customs’ rationale for purchasing minicomputers, software, and other equipment is based on several faulty assertions. First, Customs risks wasting hundreds of millions of dollars it plans to spend in the future on the CDC-2000 project should it continue purchasing hardware and software to support decentralized processing without conducting a thorough analysis. Second, while decentralized processing and the products Customs selected may be widely used, this has no bearing on whether they are a cost-effective approach to meeting Customs’ needs. Further, since the agency does not yet know how it plans to conduct its business in the future or what automated systems would best support these new business processes, it is in no position to commit to CDC-2000. Third, the Federal Information Resources Management Regulation and Office of Management and Budget Circular A-130 require thorough analyses to justify major systems efforts such as CDC-2000. Finally, best practice organizations have learned that using a structured approach can help them effectively use resources and lead to order-of-magnitude gains in productivity. Successful organizations manage information system projects as investments rather than expenses. This includes (1) creating an investment review board of senior program and automated systems managers to select, monitor, and evaluate system projects, (2) establishing explicit criteria to assess the merits of each project relative to others, including the use of cost, benefit, and risk analyses, and (3) following structured systems development methodologies throughout the system’s life. Such disciplined control processes are required by the Office of Management and Budget to help federal agencies decide which planned systems are worthwhile investments and ensure that the risks associated with building those systems are adequately controlled. Although its annual automated systems expenditures total about $150 million, Customs does not manage ACE and its other systems as investments.