The creation of DHS is an historic opportunity for the federal government to fundamentally transform how the nation will protect itself from terrorism and other threats. Not since the creation of the Department of Defense in 1947 has the federal government undertaken an organizational merger of this magnitude. Enacted on November 25, 2002, the Homeland Security Act established DHS by merging 22 disparate agencies and organizations with multiple missions, values, and cultures. On March 1, 2003, DHS officially began operations as a new department. DHS is now the third largest federal government agency with an anticipated budget of $40.7 billion for fiscal year 2005 and an estimated 180,000 employees. In accordance with section 1502 of the Homeland Security Act, the President provided a DHS reorganization plan to appropriate congressional committees specifying the agencies that would integrate into DHS, along with an overall organizational structure, but the plan did not specify how the integration of these agencies and employees would occur. Section 701 of the Homeland Security Act gave the Under Secretary for Management at DHS the responsibility for the management and administration of the department, including the transition and reorganization process, among other things. As seen in figure 1, the Chief Financial Officer (CFO), the Chief Information Officer (CIO), the Chief Human Capital Officer (CHCO), the Chief Procurement Officer (CPO), and the Chief Administrative Officer (CAO) are all housed within the Management Directorate. Figure 1 shows the organizational structure of the department, as of December 2004. DHS would have the comprehensive and sustained approach to its management integration efforts that it needs over the long term to successfully transform the agency, if it more closely adhered to three selected key practices that we have found consistently at the center of successful mergers, acquisitions, and transformations. Otherwise, the department runs the risk of not establishing and maintaining the management infrastructure needed to steer the integration of the department and ultimately to help meet its critical mission of protecting the homeland. We identified these key practices through a forum the Comptroller General convened in September 2002, as DHS was being created, to help DHS merge its various originating components into a unified department. The forum was designed to identify and discuss useful practices and lessons learned from major private and public sector organizational mergers, acquisitions, and transformations. In July 2003, we further identified implementation steps for the nine key practices raised at the forum. These key practices and implementation steps are shown in figure 2. To assess DHS’s progress to date in integrating its management functions, we determined that three of the nine practices were especially important to ensure the agency has the management infrastructure it needs this early in the process to manage and sustain its integration: (1) an overarching integration strategy, with implementation goals and a time line that links its various individual management integration initiatives; (2) a dedicated implementation team with the responsibility and authority to drive the department’s management integration; and (3) committed and sustained leadership. DHS has opportunities to more fully implement each of these practices and increase its ability to successfully integrate. We have reported that a merger or transformation is a substantial commitment that could take years before it is completed, and therefore must be carefully and closely managed and monitored to achieve success. Establishing implementation goals and a time line is critical to ensuring success, as well as pinpointing performance shortfalls and gaps and suggesting midcourse corrections. Such goals and time lines could be contained in an overall integration plan for a merger or transformation effort. It is important to note that such a plan typically goes beyond what is contained in an agency strategic plan, and provides more specific operational and tactical information to manage a sustained effort. For example, as required by the Government Performance and Results Act of 1993, a strategic plan generally contains the high-level goals and mission for an agency based on its statutory requirements, while an integration strategy would provide the activities and time lines needed, along with assigned responsibilities, for accomplishing the goals of an organizational merger or transformation. Finally, another element essential to executing a merger or transformation is to make the implementation goals and time lines public, so that employees, customers, and stakeholders are aware of what is to be accomplished and when. Our prior work shows that DHS needed to carefully plan and manage its integration, and a study commissioned by DHS underscored that the department should use an overall integration strategy to help accomplish this. For example, prior to the establishment of the department, we identified a number of management challenges that DHS might face as it moved forward in its integration, such as the establishment of a comprehensive planning and management focus and the need for a results- oriented approach to ensure accountability and sustainability. In December 2002, we recommended that careful and thorough transition planning would be critical to the successful creation of DHS and that the importance of the transition efforts to implement the new homeland security could not be overemphasized. Specifically, we recommended to OMB that in developing an effective transition plan for DHS, it should ensure that the plan incorporates the key practices we identified as being found at the center of successful mergers and transformations. In July 2004, we reported on the merger of the Federal Protective Service (FPS) into DHS and recommended that FPS develop an overall transformation strategy for how it will carry out its expanding mission, as well as meet other challenges it faces. DHS agreed with our recommendation. Moreover, in early 2003, DHS recognized the challenges it faced and commissioned a comprehensive management study to help the department create an operating structure that integrates the department’s components and to facilitate a DHS-wide integration plan linked to core missions and capabilities, among other things. This management study also recommended that DHS develop a comprehensive integration plan with major milestones defined, encompassing all of the department’s integration initiatives including functional management and mission integration activities. Early on, the department made some progress in consolidating the processes and systems of each individual function in areas such as information technology, financial management, procurement, and human capital. For example, according to DHS’s performance and accountability report for fiscal year 2004 and updated information provided by DHS officials, the department has accomplished the following activities as part of its integration efforts: reduced the number of financial management service centers from consolidated acquisition support for 22 legacy agencies within 8 major procurement programs, reduced the number of its payroll systems from 8 to 2, and expects to be using one single payroll system by the beginning of fiscal year 2006, consolidated 22 different human resource offices to 7, consolidated 271 processes associated with administrative services consolidated bank card programs from 27 to 3, and realigned more than 6,000 support services employees (both government and contractor) from the legacy U.S. Customs Service and the legacy Immigration and Naturalization Service (INS) to support the 68,000 employees of the U.S. Customs and Border Protection (CBP), Immigration and Customs Enforcement (ICE), and Citizenship and Immigration Services (CIS) organizations. In addition to improving the effectiveness of the department, according to DHS, these consolidation activities are aimed at realizing the efficiencies and economies of scale envisioned by the President and the Congress in creating DHS, by eliminating overlap and redundancies in these processes, systems, and services. The DHS IG reported in December 2004 that while DHS has made notable progress in integrating its many separate components in one department, structural and resource problems continue to inhibit progress in certain support functions. For example, while the department is trying to create integrated and streamlined support service functions, most of the critical support personnel are distributed throughout the various components and are not directly accountable to the management chiefs. We have also identified areas of concern with some of these efforts and have made a number of recommendations to make these support functions more effective and efficient. (See app. II for a list of GAO reports on these individual consolidation efforts.) For example, we reported that DHS intends to acquire and deploy an integrated financial enterprise solution and reports that it has reduced the number of it legacy financial systems. While DHS has established an office within the Management Directorate to manage its financial enterprise solution project, we concluded that the acquisition is in the early stages and continued focus and follow through will be necessary for it to be successful. DHS has issued some guidance to help each management function integrate its portion of the disparate processes and functions inherited when the 22 organizations merged into DHS. According to DHS officials, the following plans and documents were helping to provide overall guidance for these functional integration efforts. Strategic Plan: According to several senior DHS officials, the CFO, CIO, and the staff officer to the Deputy Secretary, the agency’s strategic plan, issued in February 2004, was the primary guidance being used for DHS’s management integration. The DHS strategic plan describes the department’s vision, mission, core values, and guiding principles to achieve its mission of protecting the homeland. In addition, one of its seven strategic goals, organizational excellence, acknowledges the need to integrate the systems, processes, and services the department inherited to improve efficiency and effectiveness. Draft Paper on the 21st Century Department: In April 2004, the Under Secretary for Management also developed a draft 21st century paper to provide more details as to how DHS would achieve its strategic goal of organizational excellence. The draft paper summarizes DHS’s plans for its management integration within three primary areas: (1) human capital, (2) information technology, and (3) business transformation, including the support areas of procurement and acquisition, administrative services, and financial management and budgeting. The draft paper describes key integration initiatives it will take within each key area with short-term milestones, dates, and possible obstacles. For example, the paper discusses DHS plans to implement the Maximizing Results, Rewarding Excellence (MAXHR) initiative, the department’s new human resources management system, and the Electronically Managing Enterprise Resources for Government Efficiency and Effectiveness (eMerge) initiative. The latter uses a consolidated departmentwide solution approach to integrate DHS’s financial and administrative systems, including accounting, acquisition, budgeting, and procurement.