[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]
[H.A.S.C. No. 112-64]
ORGANIZATIONAL CHALLENGES IN
ACHIEVING SOUND FINANCIAL
MANAGEMENT AND AUDIT READINESS
__________
HEARING
BEFORE THE
PANEL ON DEFENSE FINANCIAL MANAGEMENT
AND AUDITABILITY REFORM
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD
SEPTEMBER 15, 2011
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PANEL ON DEFENSE FINANCIAL MANAGEMENT
AND AUDITABILITY REFORM
K. MICHAEL CONAWAY, Texas, Chairman
SCOTT RIGELL, Virginia ROBERT ANDREWS, New Jersey
STEVEN PALAZZO, Mississippi JOE COURTNEY, Connecticut
TODD YOUNG, Indiana TIM RYAN, Ohio
Paul Foderaro, Professional Staff Member
William Johnson, Professional Staff Member
Lauren Hauhn, Research Assistant
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2011
Page
Hearing:
Thursday, September 15, 2011, Organizational Challenges in
Achieving Sound Financial Management and Audit Readiness....... 1
Appendix:
Thursday, September 15, 2011..................................... 19
----------
THURSDAY, SEPTEMBER 15, 2011
ORGANIZATIONAL CHALLENGES IN ACHIEVING SOUND FINANCIAL MANAGEMENT AND
AUDIT READINESS
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Andrews, Hon. Robert, a Representative from New Jersey, Ranking
Member, Panel on Defense Financial Management and Auditability
Reform......................................................... 2
Conaway, Hon. K. Michael, a Representative from Texas, Chairman,
Panel on Defense Financial Management and Auditability Reform.. 1
WITNESSES
Architzel, VADM David, USN, Commander, Naval Air Systems Command. 4
Fedder, Maj. Gen. Judith A., USAF, Director of Logistics, Deputy
Chief of Staff for Logistics, Installations and Mission
Support, U.S. Air Force........................................ 5
Smith, Martha, Director, Defense Finance and Accounting Services
(DFAS) Cleveland............................................... 6
Stevenson, LTG Mitchell H., USA, Deputy Chief of Staff,
Logistics, G-4, U.S. Army...................................... 3
APPENDIX
Prepared Statements:
Architzel, VADM David........................................ 33
Conaway, Hon. K. Michael..................................... 23
Fedder, Maj. Gen. Judith A................................... 39
Smith, Martha................................................ 47
Stevenson, LTG Mitchell H.................................... 25
Documents Submitted for the Record:
[There were no Documents submitted.]
Witness Responses to Questions Asked During the Hearing:
[There were no Questions submitted during the hearing.]
Questions Submitted by Members Post Hearing:
Mr. Conaway.................................................. 59
ORGANIZATIONAL CHALLENGES IN ACHIEVING SOUND FINANCIAL MANAGEMENT AND
AUDIT READINESS
----------
House of Representatives,
Committee on Armed Services,
Panel on Defense Financial Management and Auditability
Reform,
Washington, DC, Thursday, September 15, 2011.
The committee met, pursuant to call, at 8:00 a.m. in Room
2212, Rayburn House Office Building, Hon. K. Michael Conaway
(chairman of the panel) presiding.
OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE
FROM TEXAS, CHAIRMAN, PANEL ON DEFENSE FINANCIAL MANAGEMENT AND
AUDITABILITY REFORM
Mr. Conaway. Good morning. Thanks everybody for being here
at our hearing this morning for the defense management and
auditability reform panel. I would like to welcome today the
folks who are going to testify on the organizational challenges
in achieving sound financial management and audit readiness.
In our first couple of hearings, we received testimony
about the DOD [Department of Defense] level and at the military
department level on the challenges faced in attaining audit
readiness by 2017. One of the primary challenges relates to
DOD's large and complex organizational structure. DOD
operations include a wide range of defense organizations,
including military departments and their respective major
commands and functional activities, large defense agencies and
field activities.
Today we will hear from representatives from a military
systems command, logistics community and the defense agency
providing finance and accounting services to DOD components.
These organizations play a key role in DOD's ability to improve
its financial management and achieve audit readiness.
Although you normally would not associate the acquisition,
sustainment, logistics communities with financial management,
military commands and these functional communities generate and
maintain financial activity that flows into DOD's financial
statements. For example, logistics systems used to provide
tactical units with information on maintenance and
transportation of equipment are the same systems used to
provide asset information for reporting and financial
statements. Without proper controls within these functional
communities, DOD will not be able to achieve auditability.
The Defense Finance and Accounting Service provides
financial accounting services to the DOD components. In fiscal
year 2010, DFAS [Defense Finance and Accounting Service]
processed 169 million pay transactions, paid 11.4 million
commercial invoices and disbursed $578.0 billion. Since their
activities are so integral to the financial activity reported
in the DOD's component financial statements, challenges faced
at DFAS must be addressed in order for DOD to progress towards
auditability.
During these times of resource constraints and budget cuts,
it is imperative that the Department of Defense have reliable,
useful and timely information for decision making. Therefore,
it is critical that all DOD organizations within and outside of
the financial management community work together to achieve
effective fiscal management.
I would like to thank our witnesses for taking the time out
of their schedules to be with us this morning. First up this
morning will be Lieutenant General Mitchell Stevenson from
Deputy Chief of Staff, Logistics, G-4, United States Army; Vice
Admiral David Architzel, Commander, Naval Air Systems Command;
Major General Judith Fedder, Department of Logistics, Deputy
Chief of Staff, Logistics, Installations and Mission Support,
U.S. Air Force; and Ms. Martha Smith, Director of Defense
Finance Accounting Services, Cleveland.
I will now turn to my colleague to sub Joe Courtney for an
opening statement, if he chooses.
[The prepared statement of Mr. Conaway can be found in the
Appendix on page 23.]
Mr. Courtney. The Admiral appreciates that moniker. Thank
you, Mr. Chairman. And again, just to save time for the record,
Mr. Andrews prepared an opening--well, there it is. The man is
here. I will yield to the gentleman from New Jersey, Mr.
Andrews.
STATEMENT OF HON. ROBERT ANDREWS, A REPRESENTATIVE FROM NEW
JERSEY, RANKING MEMBER, PANEL ON DEFENSE FINANCIAL MANAGEMENT
AND AUDITABILITY REFORM
Mr. Andrews. I thank my friend from Connecticut for his
brilliant statement and apologize to the chairman for being
late. We appreciate the witnesses being here this morning.
I am looking forward to this morning's hearing because I
think it takes us another level down--I don't mean that in a
judgmental sense--another level of specificity in our mission.
The chairman began the hearings at the DOD level. We talked
about the department-wide effort to reach the auditability goal
in time. We then went to the service level last week and heard
about the plans of the services, and I think we have assembled
before us this morning ladies and gentlemen who will execute
the service plans because they are dealing with the actual
stuff. You know, how much rolling stock we still have left in
Iraq and Afghanistan, as the General and I spoke about the
other day, that you can't have good auditable financial
statements if you don't have a good control and data
information system. And I think we are talking to some
individuals this morning who do that very well.
So, Chairman, thank you for this next step in our process.
I look forward to the hearing. Thank you, Joe.
Mr. Conaway. Rob, thank you. General Stevenson, you are up.
Thank you.
STATEMENT OF LTG MITCHELL H. STEVENSON, USA, DEPUTY CHIEF OF
STAFF, LOGISTICS, G-4, U.S. ARMY
General Stevenson. Chairman Conaway, Ranking Member
Andrews, rather than read my opening statement, I would ask
that it just be admitted to the record.
Mr. Conaway. Without objection.
General Stevenson. And then I will quickly summarize just a
couple of the key points within it.
As the senior logistics staff officer in the Army, I can
assure you that we logisticians fully understand the importance
of auditability and, in fact, are working closely with our
teammates in the financial management community to help the
Army get there. Two key areas that we are working on are
property accountability and modernizing our entire logistics
automation enterprise from foxhole to factory.
First in the area of property accountability. As you can
imagine, maintaining detailed property accountability like we
do in peacetime is difficult at best while fighting two wars.
So last July our Army Chief of Staff launched a property
accountability campaign to help focus the entire Army on
ensuring that we operate within a culture of stewardship and
supply discipline. I would be happy to elaborate on the details
of that during the Q&A.
As I am sure you appreciate, accountability requires senior
leader participation at every level. So we use the Army's
inspection and audit agencies to ensure compliance. We have
assigned senior chief warrant officers to logistics staffs to
provide oversight to both commanders and unit supply personnel,
and we have caused there to be a significant increase in
command supply discipline inspections Army-wide. We are getting
after it.
Second, in the area of logistics automation, we are in the
process of implementing the Global Combat Support System-Army
based on a proven commercial product, in fact the business
market's leading software in integrated maintenance, supply and
financial accounting. Logistics transactions such as the
acquisition of capital property, the performance of
maintenance, the receipt, storage and issue of supplies will be
linked to their financial consequences at the transaction
level. This will be a first for the Army, and it will be key to
establishing auditable business processes. We have the system
fully deployed in the 11th Armored Cavalry Regiment in Fort
Irwin in California. Next month we will test it at Fort Bliss
in Texas. And starting next summer, we will begin fielding
Army-wide active, National Guard and Reserve, a total of
160,000 users.
GCSS-Army [Global Combat Support System-Army] will help
make auditability a reality for the Army and we project it will
save us a considerable amount of money in the outyears. Related
to GCSS-Army, we also now have fully fielded something called
the Logistics Modernization Program, which is the logistics
system we use at the national level in our depots and arsenals
and ammunition plants. It is based on the same leading
commercial software as GCSS-Army, enabling an easy exchange of
information between the two systems without costly interfaces.
It is now fully deployed throughout the Army Materiel Command
to 25,000 users and is helping us more accurately capture data
associated with the $24 billion inventory and two million in
daily transactions that are performed at that level of the
Army. LMP [Logistics Modernization Program] will enable the
entire business area at the national level to also be
auditable.
Together, these systems, along with the General Fund
Enterprise Business System and a continued commitment to
improving property accountability will enable the Army to
better trace logistics operations costs and provide
transparency. We will have more confidence in our data and will
be able to make more informed decisions, thereby reducing waste
and saving the taxpayer money.
We are pretty excited about it, and I look forward to your
questions.
[The prepared statement of General Stevenson can be found
in the Appendix on page 25.]
Mr. Conaway. Thanks. David.
STATEMENT OF VADM DAVID ARCHITZEL, USN, COMMANDER, NAVAL AIR
SYSTEMS COMMAND
Admiral Architzel. Congressman Conaway, Congressman
Andrews, members of the panel, good morning. Thank you for the
opportunity to discuss the Naval Air Systems Command's efforts
in achieving and sustaining audit readiness. Mr. Chairman, I
appreciate turning this ship into the wind right on time and
going to the launch at 0800. That is impressive, sir. I
appreciate that.
As a Commander of Naval Air Command of about 37,000 people
all told and about $45 billion per year in TOA [Total
Obligation Authority] and approaching about 289 over the FYDP
[Future Years Defense Program], I am personally committed to
the Navy's financial improvement initiatives. Achieving and
sustaining audit readiness by standardizing financial processes
to provide accurate and auditable information that supports
program execution decisions is one of my top priorities.
NAVAIR's [Naval Air Systems Command] financial improvement
program and business process standardization efforts are being
led by accounting and financial management experts with the
strong support from functional experts across my command in
multiple business process areas, to include acquisition,
contracts, logistics, human resources, corporate ops.
To support the Department of Defense efforts at achieving
auditable financial statements, NAVAIR is performing an
assessment of the E-2D Advanced Hawkeye Program. The goal of
NAVAIR's E-2D MDAP [Major Defense Acquisition Program] project
is to demonstrate financial stewardship of funds allotted for a
major acquisition program and assess the audit readiness of the
Navy Enterprise Resource Planning, or ERP, environment related
to business processes. We are on track for completion of our
assessment at the end of September this month.
The NAVAIR team is taking lessons learned from the E-2D
MDAP effort and developing an audit readiness strategy to
deploy across the command over some 110 other MDAP programs.
This strategy will stress the importance of internal controls,
compliance with regulations, maintaining an audit trail and
other concepts that will contribute to NAVAIR's ability to
achieve and sustain audit readiness. NAVAIR is leveraging Navy
ERP to strengthen internal controls, enhance standardization,
and improve the quality of information available to our
decisionmakers.
Having implemented an ERP pilot, which was entitled Sigma
back in 2002, NAVAIR is a second generation ERP user and has
significant experience with Navy ERP and relies on the system
for all of our business operations, including project planning,
funds execution, funds validation and support of procurement
and contracting, training and awards processing, time and
attendance, accounting and external financial reporting. The
implementation of Navy ERP has provided increased fidelity of
our financial data, providing our program managers timely
insight into program execution and the ability to track dollars
committed, obligated and expended and give program managers and
field teams increased visibility in the interdependencies of
program costs, schedules, resources and risks.
NAVAIR supports the Navy, DOD and congressional direction
to improve the quality of financial information and business
processes necessary to achieve clean financial audits by 2017.
I am and, more importantly, my entire command is committed to
achieving these initiatives and believe that the resources
invested will produce a significant return on investment to the
warfighter and the American taxpayer.
I look forward to your questions, sir.
[The prepared statement of Admiral Architzel can be found
in the Appendix on page 33.]
Mr. Conaway. Thanks, David. Judy.
STATEMENT OF MAJ. GEN. JUDITH A. FEDDER, USAF, DIRECTOR OF
LOGISTICS, DEPUTY CHIEF OF STAFF FOR LOGISTICS, INSTALLATIONS
AND MISSION SUPPORT, U.S. AIR FORCE
General Fedder. Mr. Chairman, Mr. Andrews, distinguished
members of the panel, thank you for the opportunity to appear
before you today to discuss several issues that are important
to your United States Air Force sound financial management,
audit readiness and responsible stewardship of taxpayer
dollars.
The Air Force logistics community is fully engaged in
supporting and achieving financial improvement and audit
readiness compliance by 2017. Our plan to meet that timeline
involves evaluation, discovery and mediation of the many facets
that affect audit readiness. We are making progress on that
plan by ensuring established inventory controls and equipment
accountability processes produce the maximum combat capability
from each taxpayer dollar and equip our warfighters with the
critical assets required to support operational demands. We are
also implementing corrective actions where necessary to ensure
assets are recorded in the appropriate accountable system of
record, valued at the correct amount and that assertions for
existence and completeness are timely and accurate.
The value of audit readiness is more than financial. It is
fundamental to what we do every day across the Air Force
logistics enterprise that enables us to responsibly procure,
store and issue inventory and equipment that contributes to our
mission. We are reinforcing that message with operational units
at every level to ensure that all airmen are doing what it
takes to achieve a clean audit.
Mr. Chairman, Mr. Andrews and distinguished members of the
panel, it is an honor to be here today. Thank you for your
interest and engagement on this important effort as we work
towards audit readiness in 2017, and thank you for your
continued strong support of our airmen and their families.
I submitted a written statement for the record, and I look
forward to the question-and-answer period.
[The prepared statement of General Fedder can be found in
the Appendix on page 39.]
Mr. Conaway. Thanks, Judy. Martha.
STATEMENT OF MARTHA SMITH, DIRECTOR, DEFENSE FINANCE AND
ACCOUNTING SERVICES (DFAS) CLEVELAND
Ms. Smith. Chairman Conaway, distinguished panel members, I
am pleased to be here to discuss the financial services DFAS
provides the Department of Defense and the complexity involved
in providing those services. I will discuss our efforts to get
DFAS as a service provider to the DOD to an audit-ready state
by fiscal year 2017, as well as discuss how we are helping our
customers meet their assertion goals. I am providing detailed
information on this issue in a statement for the record.
DFAS provides centralized payroll and commercial payment
and financial reporting services for the military and its
civilians. We also provide the summary level financial reports
Congress uses to monitor the financial health of the military
services. To illustrate the complexity of our work, all
financial reporting begins with a single transaction. It can be
as simple as a DOD civilian inputting their time and attendance
or as complicated as defense officials drafting a multi-million
dollar contract for a major weapons system.
Each of our 169 million pay transactions for fiscal year
2010 had an associated line of accounting. Consolidated into
1,129 active DOD appropriations, each transaction must be
reflected in over 255 million general ledger accounts.
Just as an example of the complexity, the current Black
Hawk Helicopter Program consists of three contracts. Funding is
distributed among several services and foreign military sales.
Since the original contract award, there have been almost 1,700
contract modifications and we have made approximately 22,000
payments for nearly $7.8 billion. Since fiscal year 2009 alone,
DFAS has received approximately 211 monthly invoices for
disbursements averaging $188.0 million per month.
Nearly all DOD transactions make their way to one of our
many systems, some owned by the services but used by the DFAS
employees. Employees create or monitor the transactions,
validate authenticity and accuracy, consolidate the
transactions into reports and validate the accuracy of those
reports. We project DFAS will disburse approximately $668.0
billion in fiscal year 2011. Additionally, each month we
reconcile approximately $100.0 billion worth of transactions,
$85.0 billion in disbursements and $15.0 billion in
collections.
Our legacy systems are originally designed to provide local
level management reports and summary level information used to
prepare financial statements. Over the years, much of the
transaction processing a statement preparation shifted from the
services to DFAS. It is a challenging effort. And added to the
mix are the new ERPs, Enterprise Resource Planning systems,
used by the local level commands, produce financial information
for the programs. The ERPs provide a level of discipline and
standardization that is extremely beneficial to DOD's audit
efforts and internal controls. However, a massive amount of
data is still fed into the ERPs from the legacy environment
since the ERPs do not process all types of transactions such as
military pay and civilian pay.
Visibility and traceability of transactions is integral to
any audit. So we are working hard to ensure our processes are
audit ready. DFAS efforts to standardize and strengthen
internal controls began 20 years ago. Since 1991, we have
reduced our footprint from 300 to just 10 sites and
standardized our day-to-day activities in improving and
eliminating systems. By consolidating field level accounting
and finance functions into our financial reporting entities, we
have a better opportunity to standardize processes and data and
to fix problems at the source.
DFAS's most valuable asset is our people, and we have made
investments to strengthen our workforce. Today, 85 percent of
our accountants have degrees. Since 2007, we have seen an 88
percent increase in the number of certified public accountants
and certified management accountants and a 322 percent increase
in project management professionals and their certifications.
To support customers' audit efforts, we have mapped
processes, implemented control points, tested internal controls
and mitigated risk for many key processes. We use the
overarching principles from the DOD Financial Improvement and
Audit Readiness Plan to ensure audit readiness is focused on
day-to-day activities, that a proactive approach is used for
correcting deficiencies and our improvement initiatives are
sustainable.
Our goal is to be prepared when the customers assert on
specific parts of the financial statements. We also must be
prepared for examinations of the services we provide customers
that contribute to their assertion schedules. We have
established audit readiness teams to provide realtime support
during pre-assertion preparation during the audit and post
audit.
We have partnered successfully with the Marine Corps and
identified improvement initiatives which we can replicate for
the other services, And we are establishing a senior steering
committee to proactively implement lessons learned from all
audit findings. DFAS is walking in concert with our customers,
expediting improvement initiatives, addressing systems
challenges, and moving toward audit readiness and the goals
established by DOD and Congress.
The support of our senior most leaders, involvement of
every employee in the process, and the continued collaboration
with our customers are all key to our success.
Chairman Conaway and distinguished members, thank you for
your time today, and I look forward to your questions.
[The prepared statement of Ms. Smith can be found in the
Appendix on page 47.]
Mr. Conaway. Well, I thank the witnesses. This may be a
record, four witnesses doing their statements in less than 20
minutes. Thank you very much. We will endeavor to stay on the
5-minute clock as well. And with just four of us, we may get to
go more than just one round. I appreciate everybody being here,
and thank you very much for having it.
The top layer of folks have talked about putting in place
performance evaluation measures for people who are responsible
for making this happen and then holding them accountable to
those standards. Can you give us a quick couple of sentences
about each of your four organizations and how you are making
sure that--the wonderful things you said, Martha, are spot on,
but unless you track it, unless you hold folks accountable, it
is not going to happen. So could you talk to us about how the
uniform as well as the civilian personnel, how you make sure
they have got the right incentives in place and that we measure
those--progress?
General Stevenson. Sir, I think you sort of alluded to it.
The Secretary of the Army has directed that starting in fiscal
year 2012 and forward, all senior leaders involved in both
logistics, finance and those things necessary to get us
auditable will have a requirement to have in their appraisals
the measures of their performance in toward meeting that goal.
They will be rated on how well they supported the goals. I
think that will be enormously motivating.
Mr. Conaway. Okay. David.
Admiral Architzel. Mr. Chairman. It is very similar on the
Navy side. Today if I was to look at my senior executives who
has a performance evaluation that goes into maintaining audit
readiness or these kind of things, today I would say it is
probably my comptroller. But starting in fiscal year 2012,
anyone that is involved in generating a financial transaction
is going to have accountability within their senior executive
performance appraisals. That will get down to deputy PO [petty
officer] levels who are clearly responsible for generating
transactions or into the many people that go within that as
well.
On the admiral, sort of the flag side of the house, I would
tell you that our Vice Chief has been very clear with the
series of--directing memos about we will take this serious
across our flag community to make sure that it is also brought
home on the military side. So it is reflected in our
evaluations and fitness reports as we go forward there as well,
sir.
General Fedder. Mr. Chairman, the Under Secretary of the
Air Force and the Vice Chief of the Air Force sent a note out
to all of the major command commanders, those operational
commands, the four-stars that really have the airmen that are
touching the systems and directed that both from a functional
side that the performance plans of our senior civilians include
specific performance measures associated with financial
improvement audit readiness. And those measures--their
performance will be measured in that regard.
On the command side where we have airmen that are out there
that are effecting the inventory precision and doing things
that are also going to contribute to audit readiness, they have
also emphasized to major commanders--major command commanders
that it is important for commanders at all levels to understand
the importance of achieving these. And the measures overall
that we expect to see to the effectiveness of this very heavy
senior leadership involved in this will be the continued
success that we have when we assert existence and completeness,
for instance, as we continue down with our FIAR [Financial
Improvement and Audit Readiness] execution plan.
Ms. Smith. Most all of the components associated with
becoming audit ready are an integral part of our overarching
strategic plan, and we have pushed our plan down into our
performance appraisals for all of our employees, all the way
down to the lowest levels, trying to inculcate that culture of
audit readiness into what we do on a day-to-day basis.
Mr. Conaway. Rob and I will look forward this time next
year to visiting with a variety of folks just to see how well
that has worked and if deadlines were missed and those kinds of
things if we are able to make that happen.
Rob, 5 minutes.
Mr. Andrews. Thank you, Mr. Chairman. Thank you to each of
the witnesses for a very thorough and good job.
Ms. Smith, I really concur with your comment about
personnel being the key to making these audits available. When,
God willing, the economy turns back up and accountants can go
into the private sector, what kind of inducements do we have to
retain the talent that we have at your agency in the public
sector? What are the incentives and advantages to do that?
Ms. Smith. Well, I think the security that we provide the
employees has been extraordinarily beneficial and we have seen
a lot of employees recently coming in from outside industry
looking to the government for a good secure type of job. The
incentives that we use, we have a very comprehensive award
program that we have across DFAS in terms of even down at the
lowest level on passing awards between employees. But we strive
to again keep the audit readiness at the top of our strategic
goals. And so therefore, we are looking for all types of
innovation and incentives to ensure that we----
Mr. Andrews. You certainly made impressive gains in the
preparation and quality of the workforce. We certainly want to
protect that investment.
General Fedder, I am impressed by the degree of intensity
the Air Force has given to corrective action. It looks like at
the highest levels, there is weekly, as I understand it,
reviews of what is going on. Can you tell us an example of a
couple of corrective actions that you have had to follow up on
and what you have done to follow up on them?
General Fedder. Yes, sir. Mr. Andrews, when we proceeded to
assert spare engines, for instance, as one of our operating
materials and supplies, we did identify that there were some
gaps in our policies associated with inventories and how we
report the spare engines through this process. And so we went
back and had to identify a clarification and changed a policy
in the reporting process of those spare engines.
Mr. Andrews. Does that mean it was possible that we
reported more spare engines than we really had or we missed
them? What does it mean at the practical level?
General Fedder. In this case, we identified that about 30
percent of the units were not properly reporting the inventory
of spare engines and there wasn't the catch in the system that
we would have expected to identify that there was----
Mr. Andrews. This is a perfect example of why we have this
panel. And I commend the chairman and ranking member for
creating it. It is possible that if you didn't fix that
problem, it is possible that we would have made a financial
decision to purchase more engines or more parts when we
actually had them. So you buy something you don't need. The
opposite is true, by the way, that we might erroneously believe
we have spares and we don't and not have the readiness that we
should. So keep up the good work.
Admiral, I know that there was an ERP pilot in the Navy in
2002. I wonder what the most important lessons learned were
from that pilot and how you have applied them to this broader
effort that you are engaged in now.
Admiral Architzel. Thank you for the question, sir. In
2002, one of the pilots--there were several pilots in the Navy.
NAVAIR had one of them and it was called Sigma. It was a first
generation ERP system. In that ERP system, it allowed us to get
financial visibility across all of our programs. So you had the
ability to take our data input from PBUSE [Property Book Unit
Supply Enhanced] or our budget inputs and it would come down to
line item disbursement through appropriations and right down
into accounts. So program managers had the visibility without
having to manually enter that data and continue then to verify
and do a lot of manual rework. And that creates errors. Any
time you have variation in process, that is not a good thing.
Mr. Andrews. So you are able to reduce those errors by----
Admiral Architzel. Absolutely. Yes, sir. And over the time,
approximately 260 man-years in terms of what I would say would
be in our experience with ERP, we eliminated in Sigma, which
was the first generation ERP, about 55 legacy programs. And
since we have incorporated to Navy ERP, it has been about four.
Mr. Andrews. What was the reference to 260 man-years?
Admiral Architzel. Man-years. Reduction in man work to do
the kinds of things I am talking about, about tracking dollars,
about validating and verifying----
Mr. Andrews. In other words, one person working for 260
years would have had to do these tasks and now you have
eliminated that?
Admiral Architzel. Yes, sir.
Mr. Andrews. We should try that around here, Mike.
I am going to ask for a second round if we have a chance
because I did have a question for General Stevenson, but I am
going to yield back at this point. If we could do a second
round, I would appreciate that. Thank you.
Mr. Conaway. Steve, 5 minutes.
Mr. Palazzo. Good morning. Thank you all for being here to
continue our conversation on such a very important issue. I
think from a lack of attention in the past there is a reason
why we are here again today and be here probably next year. But
really, I am excited about the improvement that we have made in
addressing these issues. Last week I was kind of more focused
on, you know, the sharing of information between the DOD
services and the agencies.
And, Ms. Smith, you mentioned taking the lessons learned,
having an after-action review and then sharing them with our
partners across the DOD industries and other logistics in air
and DFAS. Can you all just share--I am kind of wanting to know,
one, is what has been some of the major obstacles or hurdles to
achieving audit readiness, as well as, you know, maybe just
some success stories? I think you all mentioned some of them,
it has been answered. And also just your lessons learned. And
how are you going about sharing your information with the other
branches and other services.
Ms. Smith. I can start. We learned a great deal from our
efforts that we have done with the Marine Corps audit. One of
the areas that we were focusing on is how do you reconcile all
of this data. We receive data from the legacy systems. We will
be receiving data from the ERPs, et cetera. So how do you give
the visibility of that data to the auditors? Through the Marine
Corps audit, we realized we had to give visibility of that data
all the way from the beginning of the transaction all the way
through to the financial reports. So we have created
reconciliations across the board for all of the services and we
are working on systems that will help us do that and be able to
show the auditors that this transaction can flow all the way
from the financial statements back to the source. And we can
retrieve that source documentation for them. Those are some of
the big ones.
But we have a steering committee that we are setting up
that goes across the board on lessons learned so we can as a
DFAS entity, we can help all the services with that.
General Fedder. Sir, as we have progressed with our plan to
achieve audit readiness, some of the things that we have seen
as a success story is the value of data cleanup within our
systems. And frankly, we learned this from some of our fellow
service efforts that are a little bit farther along in the Air
Force in some cases. But we have seen that in order to be able
to use legacy systems, for instance, those systems that we have
now that are not under an ERP, the value and necessity of
making sure that the information that we put into our logistics
systems for things like inventory management and accountability
have got to be very exacting and that before we can really
achieve a clean audit in a lot of those systems we need to go
back and ensure the accuracy of that data. That is one of the
things that we continue to work on as we adapt our legacy
systems and we mediate those systems to make sure that we can
achieve the audit. Some of the obstacles that we have
identified so far are specifically within those systems.
As has been mentioned by one of my panel peers, the use of
the systems that are not under an ERP tend to be very personnel
intensive because of the fact that our systems don't talk to
each other. We have inventory accountability systems that are
not necessarily linked all the way in an end-to-end business
process. And that requires a lot more manual labor to make sure
that we can provide that exactness associated with an audit.
Admiral Architzel. Congressman Palazzo, thank you for the
question. As you look at the value of what we have for this
effort in terms of what it is, I would say one thing for me as
a commander, it is a team sport. And I think we have to--I have
been trying--I am driving that home throughout the command
because we won't succeed if it is just a comptroller viewed
activity. And it is not. So if you look at every process that
we have that generates a financial transaction, there are
people that are in contracts, that are in engineering, that are
in testing that contribute to that efficacy of that process.
So what we are doing is taking every one of these areas
where we generate a financial transaction and end-to-end
processing, look at the business processes that go with it,
look at the controls that are in place to control that process,
find out where we are not in control and then do something
about it.
There are examples of that I would give in civilian pay
where we had things--we were recording our civilian pay and we
knew what was going on, but we actually found what we didn't
have was the actual ability to ensure that how do we reconcile
that within, say, if there is not accounted for civilian pay.
It was done differently in different areas of my organization,
different competencies. We have standardized that now. And by
doing that, we have a standardized business process which is
key to it. So our financial improvement process is important.
It feeds into the overall ability to say we are ready
financial, audit readiness. But above everything else, command
involvement and command participation throughout the process.
Mr. Palazzo. Thank you.
Mr. Conaway. Joe, 5 minutes.
Mr. Courtney. Thanks, Mike. General, your testimony was
really impressive in terms of actually, you know, just coming
out and saying that you anticipate $8 billion in savings with
this new system starting in 2017, you know, which sort of takes
this thing out of just the--sort of the theoretical and into
real numbers, which obviously is important to everybody in this
committee who has been going through these hearings on the
challenges facing the Pentagon coming up.
Can you talk a little bit about, you know, what--where does
that come from? Is that, you know, waste, fraud and abuse? Is
that, you know, other ways that you can feel comfortable
projecting that savings?
General Stevenson. Sure. It comes from a number of
different locations, but probably the one that is I think the
easiest to understand is we will not have to do so much
reconciling between separate instances. Today the
architecture--and I was going to, sir, answer your question if
it had gotten to me--that our biggest problem has been our
architecture. We have got stovepipe systems at each of our
echelons that have to then pass the data at end-of-day
processes. And if the communications somehow get interrupted in
part of that--and if you can imagine doing that in Afghanistan
or Iraq--then maybe there is pieces of that data you are
missing, you are losing or it posts after--because data is
important to be posted in a time sequence manner. And so you
end up having to have lots of people at each of the echelons
and in the financial community trying to match the receipts,
the issues, the cancellations, the change--did it get charged
against the ledger, did it not get charged against the ledger.
All of that is going to go away in our ERP system because it
will all be a Web-based system operating off of a single
database and so that there is no need to reconcile anything.
And all of that I think is going to go away and that will be a
huge part of what we save.
Mr. Courtney. I mean, that sounds like actually a fairly
modest, you know, prediction on your part because you are not
sort of getting into other ways that you may pick up, you know,
duplication or waste or whatever, I mean. So I guess we have
got nowhere to go but up from that $8 billion figure assuming
you have got a really high functioning system. Is that a safe
statement to make?
General Stevenson. I think so. And of course there is costs
associated with implementing the system. So what we have tried
to do is figure out through a business case what is the net
savings to the Army. We think our payback starts in 2019, that
we will have paid for what we have done in just that short
period of time.
Mr. Courtney. Admiral, you have been nodding your head. I
don't know if you want to chime in.
Admiral Architzel. I couldn't agree more with the--the ERP
for us within 1-0--it is really acquisition financial
management. When you get to 1-1, that is our single supply
system. So when we get into that--by having that across the
Navy, if you will, in our SYSCOMs [System Commands] and into
the NAVSUP [Naval Supply Systems Command], we then have
visibility on all of our supply pieces and parts, which is the
first time you can actually see end to end. You want to see an
F-18 all the way down from when it is on the flight line to the
parts that are supported and needed and where those parts are
and where they exist, and that would reduce sparing, it would
reduce warehousing. That is where you will get significant
savings from ERP, above and beyond that which you get--and I
mentioned before--the business end of doing accounting and
reconciliation which is on the 1-0 piece. So I think it is a
tremendous one in there.
I do have some concerns and that would be, you know, in
terms of it is not a simple thing to do to take the inventory
today and map them into ERP. It is a very time consuming effort
to go forward. We are in a phased approach to do that, And I
know we will get there. But it is not a given that it will be a
simple bill, but it is well worth the effort in doing that.
Mr. Courtney. And in terms of, you know, trying to get the
resources there to get that transition done--I mean, Admiral
Roughead has talked about, you know, the fact that with--again
some of the cost savings and efficiencies that the Navy needs
to find, that a lot of personnel are going to be sort of being
moved closer to the waterfront and out of sort of, you know,
offices. Is that going to kind of create a challenge in terms
of that? Or is that something that you think the Navy can
handle, assuming again people are being deployed a little bit
more in frontline positions?
Admiral Architzel. Well, personally I think we need to move
people closer to the flight line. That is where the activity
is. That is where our support is to the warfighters, at the tip
of the spear if you will. So I am an advocate for things--in
our FRCs [Fleet Readiness Centers], for example, about moving
those assets closer to the flight line, about being able to
have them spread to where our fleets concentration areas are.
So I think that is a proponent of it.
There is an inherent problem in how we did contracting
before in some areas when you get into supply systems. If I was
to look at a previous contract, you would see there would be a
line item that would say spares. And it would have, who knows,
800 spare items that would be listed, but they would be
listed--and that was just one line item in there that says
spares under an equipment line item number. Within that and
made an appendices to that would be handwritten inventories
that goes with those spares. To go forward in the ERP, what we
need to do under improving the system would be to break those
out into individual line items that come right down--and you
can call out then. And then from the day you award that
contract, you can track that spare from contract award--DFAS
can track it, we can track it, supply systems can track them
all the way through. And that is what will eventually lead to
the ability to do the things like valuation and configuration
management and accreditation.
Mr. Courtney. Thank you.
Mr. Conaway. We will do a second round if everybody has
questions.
Human nature is such that you are comfortable with doing
things the way you have done it in the past. And you have all
talked about legacy systems. And there is a tension because all
of this change you are doing is--you don't get to take a year
off from everything else you are doing in order to make this
happen, you have got to continue to provide whatever data you
have been providing at the exact same time. But you don't get
to double your workforce to do this. You just have to--
everybody has to do it. So there is--I have observed in the
past--a tendency to hang on to stuff longer than you needed to.
We have talked to the other folks about this as well. How
best do you track the demise of legacy systems and all of the
associated costs that go with just maintaining those and the
extra work that is associated with that? How do you track--do
you have a plan that says at the end of the day we are going to
have all of these legacy systems that are going to be gone so
that you know and from our oversight standpoint that we will
know that you are down to just those systems that are needed
and necessary to make this thing work and we are not clinging
to something because it is just an old comfortable pair of
shoes that work?
Martha, do you want to start?
Ms. Smith. Sure. Within the DFAS walls, we have eliminated
a lot of systems over the years. And we are seeing the benefits
of the ERP. And believe me, we would like to see the legacy go
away as fast as possible. However, we have been dealing with
the legacy for a long period of time. So in terms of the data
flows, we have got that pretty well nailed down and then we
are, you know, adding the ERP stuff to it. But within the DFAS
systems, we have eliminated a lot of systems. We have tracked
that. And we are pretty comfortable with the new systems that
we have in place now. So I think we are moving along in the
right direction in that area.
General Fedder. Mr. Chairman, frankly I don't think that
there is any tendency in the Air Force logistics community to
want to hang on to those legacy systems when we have the
opportunity to transition to something like an ERP,
specifically for the Air Force, the expeditionary combat
support system. We have seen in the pilot of ECSS
[expeditionary combat support system], although that hasn't
yielded as much information as perhaps the other service ERPs
have yielded so far, but we have seen the value in being able
to better provide that total asset visibility.
So for the airman at the unit level who is responsible for
receipt, proper storage and accountability of spare parts, for
instance, that airman can easily see through the ERP system and
the way that system is going to provide connectivity with all
our systems. They can see the value of the workload that is
reduced associated with that in delivering a better product to
the warfighter.
Admiral Architzel. Mr. Chairman, it is a great question and
it is not an easy one. Let me just try and say that on the
outset, certainly legacy systems--I think personally we need to
look at legacy systems in a way that some legacy systems are
not all bad. We need to understand what they are and not just
make this blanket statement that all legacy systems are bad.
Let me explain.
When I talked about Sigma, we came on ERP in Navy, NAVAIR,
we had about 55 systems retired. And those were principally in
financial management areas we could do that. Since we have been
on ERP, one of those systems we retired actually is Sigma. So
there has been four. The Navy is on track--I believe the number
is 196 retired legacy systems with about 14 done to date. But
when you look at what it is--I would say that in the area of
NAVSUP, for example, they retired legacy systems that were
based on FORTRAN [IBM Mathematical Formula Translating System]
and those kind of things. They needed to be retired. There are
going to be tremendous savings. But I look at today--your point
is a good one. I have to operate today and provide direct
support to the fleet out there, to the Hornets that are on
station, the 60 ``Romeos'' [MH-60 Seahawk helicopters] that are
out there and know what is their configuration, what is their
ECPs [engineering change proposals], what do they need, know
what their health and management systems are. I have vehicles
today to do that. They could be supplanted or taken over into
an ERP system. We need to carefully evaluate what the costs are
to do that and what the true benefit is of that. So there is a
place when we do this in a metered fashion, not just to say
blanketly we are going to get rid of every system.
Mr. Conaway. But you have got a plan to track that?
Admiral Architzel. Yes, sir. Absolutely.
General Stevenson. Sir, I have been appointed the logistics
domain owner for all logistics systems in the Army. We started
out with over 800 different systems, some small, some large.
And my goal is to reduce them down to our ERPs. And as of the
last--I do a quarterly review. As of last review, I think we
are down to about 160. I also control the dollars that sustain
those systems. So it will be very easy, I think, to enforce
discipline in getting rid of them.
Mr. Conaway. Thanks. Rob.
Mr. Andrews. Thank you, Mr. Chairman. General Stevenson,
thank you for your testimony. I also wanted to explore, as Mr.
Courtney did, the genesis of this $8 billion savings estimate.
Could you walk us through how you derived that projection?
General Stevenson. Yes, sir. It comes from a number of
components. One is inventory reduction. We think that there is
about $2.0 billion worth of inventory reduction we can get to
by having visibility over what we have got, being able to move
it around and not have individual entities buying their own.
Mr. Andrews. Let us not have more than we need?
General Stevenson. Exactly. There is reorder costs that go
on because they are not sure whether what they have got on
order is coming to them because they don't have visibility of
where it is. It is kind of the Amazon.com capability that we
lack today in the Army.
Mr. Andrews. If this works with teenage girls, let me know
because we can try it at our house, too.
General Stevenson. It is an area of concern. And I just
last week had a large meeting with--the RAND Corporation is
doing some work for us on excess--excess orders we are
generating. And a lot of it comes from lack of confidence. I
talked about the component associated with reconciling records
at various levels. And it is a combination of all of those
things and some others that I can't recall off the top of my
head that contribute towards this business case that says by
2019 you will have paid for.
Mr. Andrews. Is the $8 billion over what period of time?
General Stevenson. Through the life of the system, through
10 years.
Mr. Andrews. So roughly 10 fiscal years. Let me ask sort of
a very basic question to each of you from the Services.
General, if I wanted to know how many radio parts existed
for a certain airplane today and I needed to find one, how
quickly could your group find that part and know how many that
you had? Say we needed that answer ASAP. How quickly could you
get the answer?
General Fedder. Sir, within an hour we could go to the
standard base supply system, which is our current retail level
supply inventory, and identify by stock number where those
radio parts----
Mr. Andrews. And you have a high degree of confidence that
would be right?
General Fedder. Yes, sir.
Mr. Andrews. Good.
General Fedder. Yes, sir.
Mr. Andrews. Admiral, what if I wanted to know how many
cases of water we have on Navy ships at this moment, could we
know that?
Admiral Architzel. I would go to the supply system to get
that answer. But in terms of what I would tell you--within our
aviation and logistics environment, our automated logistics
environment, today in the Naval Supply program--within the
naval enterprise, we are very able to extract what equipment we
have and what ECPs are on--sorry--what do we have to have, what
the inventory--what parts and pieces we have and need.
Mr. Andrews. Could you get that answer for us pretty
quickly?
Admiral Architzel. Yes, sir.
Mr. Andrews. High degree of confidence again?
Admiral Architzel. I do. Absolutely.
Mr. Andrews. And, General, you and I talked the other day a
little bit about this. But if we wanted to know how many of
those clamshells we have in Iraq and the degree of disrepair or
repair they are in, how quickly could you get that answer?
General Stevenson. Sir, the number, easy. In a matter of a
quick inquiry. The condition, I would have to go ask. And that
just takes time because----
Mr. Andrews. So we don't have a database that exists
necessarily about the condition of the assets at all times?
General Stevenson. Not when it is in the hands of the user.
And that is part of our problem. I mentioned the architecture
of our current systems.
Admiral Architzel. There is another aspect, if I could,
sir. It is the value of that system, too. So that is part of
what we have to have for audit readiness. And I think that is a
concern we are all going to have to come back with. We can do
that, but it will be very manual intensive.
Mr. Andrews. I really appreciate you saying that, Admiral,
because one thing we have learned from our panels of witnesses
is that there is a real difference here between the quantity of
the number of things you have and the value of them. And the
value process is a subjective process, as well as an objective
one, which means that producing financial statements for the
military is a sui generis project. I don't think it is quite
like producing financial statements for a retail store or a
homebuilder because, A, you don't really know the market value
of goods because some don't have a market value. And, B, you
don't know their utility because they are in far-flung places
around the world and what not. So we do appreciate the
complexity of the problem.
I think this has been an excellent panel doing excellent
work, and I appreciate each of you. Thank you.
Mr. Conaway. Let me ask one other question. I want to make
sure our witnesses get their money's worth for the preparation
that was done. Thank you for whatever it is you guys did to
come here today and put that together. Leadership is key at
every single level. Are we far enough along in this process
that when your replacements show up and somebody moves into
those slots, that the forward momentum is such that it is going
to happen or what is it that you are looking for to make sure
this process does get completed when there is a change of
leadership? General Mitchell, you mentioned the other day you
have got enough skin in the game that you own some of this, you
really want to make it happen. So how do each of your
organizations make sure that new leadership has the same
understanding of how important this is and that we don't lose
any ground just because we changed the top person?
General Stevenson. Sir, I think in our case we have got the
design work done and that is really the key, because all we
have got to do now is implement what we have designed, and I
think we have irreversible momentum toward that end state. Now,
it could get interrupted by a lack of resources and certainly
we are counting on being able to continue to make the
investments we need to make. It is fully funded in our program.
But, you know as well as I do that could get interrupted in any
year. But absent that, I think we are on a path toward
irreversible momentum to get it done.
Admiral Architzel. Sir, I think it is fundamental to
everything we do in the military when you look at command
structures and how we do things. Measure my performance, not
where I am in NAVAIR today. Come back in a year and tell me how
NAVAIR is doing and I will tell you how I did in command. So it
is a reflection of what we instill and what we pass through.
This is a team effort. It is not one carried by one individual
by any means. I don't have the background or the knowledge to
do this alone. So we rely on everyone. I am absolutely
confident that it will be enduring.
General Fedder. Mr. Chairman, in the logistics environment
at the execution level, the continued ability for an airman to
make sure that inventory is right, that they store it right,
that they stock it right, all of those are again fundamental
parts of what we do in logistics. But to capture the momentum
that we have going towards ensuring audit readiness, we have
included in the Inspector General system a special interest
item to reconcile what we are doing at unit level that is going
to drive us to audit readiness. We have captured it in our
logistics assessment systems, performance measures for civil
service members, as we talked about a little bit earlier,
things like policy.
But I would say in addition to all of those measures, the
continued DOD leadership focus on this and certainly the
interests and involvement of Congress and your panel here to
make sure that we continue down this path will make a big
difference.
Ms. Smith. I think it goes back to making sure that the
culture of the entire organization is focused on the priorities
and the strategy, and I think we have done that pretty well in
the DFAS world. We haven't finished pushing it all the way down
to our lower level individuals, but our trainees and our
accountants that are coming in the door, the first thing that
they are trained on is how do we get our processes to be better
and how do we focus on fixing the issues with the systems, and
so on and so forth.
We have tried to change our culture from fixing the
problems at the top to fixing the problems at the source, all
the way down into the organization. So that is how we are
trying to keep it flowing.
Mr. Conaway. Rob, do you have anything else?
Mr. Andrews. No. Thank you again. I would like to thank the
witnesses for an excellent presentation.
Mr. Conaway. I give the witnesses an opportunity to say
whatever it is that you wanted to say that we didn't ask or you
didn't get it in your opening statement. Anything that anybody
wants to add for the record?
Again, thank you very much for being here and the meeting
is adjourned. Thank you.
[Whereupon, at 8:55 a.m., the panel was adjourned.]
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A P P E N D I X
September 15, 2011
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
September 15, 2011
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QUESTIONS SUBMITTED BY MEMBERS POST HEARING
September 15, 2011
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QUESTIONS SUBMITTED BY MR. CONAWAY
Mr. Conaway. Your testimony stated the Army will achieve $8 billion
in savings through the fielding of the Global Combat Systems Support-
Army (GCSS-A) program. Please explain when and how you will realize
these savings.
General Stevenson. Eight billion dollars is the value of the
estimated net benefits from implementing GCSS-Army. Net benefits are
the difference between total benefits and the cost of developing,
implementing and sustaining GCSS-Army between now and 2027. Net
benefits include inventory reductions, reparables tracking, costs of
reorder (acquisition costs), legacy systems operation and upgrades and
productivity enhancements. Benefits slowly begin to be accrued in 2013,
with a rapid increase beginning in 2017 (when legacy systems are shut
down) and break even in 2019.
Mr. Conaway. In his testimony, Lieutenant General Mitchell
Stevenson indicated the U.S. Army expects to generate $8 billion in net
savings between 2017 and 2027 with the implementation of the Global
Combat Support System-Army (GCSS-Army). He noted that the savings come
from a number of different locations, such as reductions in inventory,
re-order costs, and excess orders and increased efficiencies (e.g.
eliminating the need to perform reconciliations between stovepipe
systems). This situation is not unique to the U.S. Army. What financial
benefits/costs savings does your Service expect to generate as a result
of implementing ERPs? Please explain what additional tangible benefits
you expect to see as a result of using ERPs.
Admiral Architzel. The Navy has conducted extensive analysis of
realized and expected benefits due to the implementation of Navy
Enterprise Resource Planning (N-ERP). Our analysis has resulted in
quantifiable inventory reduction and legacy system retirement metrics.
In addition to metrics that can currently be quantified with a high
degree of confidence, the Navy also expects to realize tangible
benefits from N-ERP in terms of enabling and sustaining cost effective
audit readiness through improved financial controls by FY 2017.
Inventory Savings across the FYDP (FY12-17) equal $276M. Savings
have been documented in PBIS as a Navy Working Capital Fund reduction.
Inventory Cost Avoidance Post FYDP (FY18-23), defined as costs that
would have been incurred, but will be avoided as a result of Navy ERP,
equal $456M. (See attachment 1 on page 60.)
Legacy System Retirement Savings across the FYDP (FY12-17) equal
$350M. Savings have been documented in PBIS as a Navy Working Capital
Fund Reduction. Legacy System Retirement Cost Avoidance across the FYDP
(FY12-17), defined as costs that would have been incurred, but will be
avoided as a result of Navy ERP, equal $436M. Legacy System Retirement
Cost Avoidance Post FYDP (FY18-23), defined as costs that would have
been incurred, but will be avoided as a result of Navy ERP, equal
$618M. (See attachment 2 on page 61.)
Total Savings from Inventory Reduction and Legacy System
Retirement: $626M Total Cost Avoidance from Inventory Reduction and
Legacy System Retirement: $1,510M Total Savings & Cost Avoidance:
$2,136M
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Mr. Conaway. In his testimony, Lieutenant General Mitchell
Stevenson indicated the U.S. Army expects to generate $8 billion in net
savings between 2017 and 2027 with the implementation of the Global
Combat Support System-Army (GCSS-Army). He noted that the savings come
from a number of different locations, such as reductions in inventory,
re-order costs, and excess orders and increased efficiencies (e.g.
eliminating the need to perform reconciliations between stovepipe
systems). This situation is not unique to the U.S. Army. What financial
benefits/costs savings does your Service expect to generate as a result
of implementing ERPs? Please explain what additional tangible benefits
you expect to see as a result of using ERPs.
General Fedder. We expect to realize approximately $2.84B in net
savings from our ERP investments over the period from 2017-2027. Like
the Army, savings will come from a number of business elements. Savings
come from eliminating thousands of system interface requirements and
hundreds of system modernization efforts. The Air Force will reduce or
eliminate contract support requirements, maintenance costs, and
upgrades for hundreds of core legacy systems that are technically
obsolete, not well integrated, lack necessary internal controls, are
costly to operate, and drive manual rework and reconciliation. By
reducing the amount of time Airmen spend on administrative processes,
more time will be available to devote on tasks directly supporting the
warfighter.
The AF has three ERPs that are part of our target environment.
These are the Defense Enterprise Accounting and Management Systems
(DEAMS), the Expeditionary Combat Support System (ECSS), and the Air
Force Integrated Personnel and Pay System (AF-IPPS). DEAMS provides the
Air Force with a transaction-based general ledger, which is the
foundation for auditable financial statements and replaces nine legacy
systems. This capability enables accurate and timely financial
statements, accurate budget forecasting, and enhances our ability to
reduce unliquidated obligations and accounts receivable by $1.67B from
2017-2021. ECSS will streamline the supply chain management process in
the Air Force and is scheduled to replace 240 legacy core logistics and
financial systems and 564 interfaces with an estimated 10-year net
benefit of $0.67B. ECSS savings estimates have been revised downwards
as a result of current program performance, and may increase with
successful program implementation. AF-IPPS will serve over 500,000
military members via a single, seamless personnel and pay solution for
the Air Force's Active Duty, Reserve, and Guard components. AF-IPPS
will retire 20 legacy information technology platforms, and save more
than $0.5B in system operation costs during the lifecycle. AF-IPPS will
reduce today's 85,000 annual pay cases by 75% and improve payroll
timeliness from 93% to 97%.
Mr. Conaway. As the agency that provides financing and accounting
services to the Department of Defense, the Department's transfers to
ERPs has a direct impact on DFAS and its ability to do its job.
a) What challenges are DFAS experiencing as a direct result of the
Department's transitions to ERPs?
b) What is DFAS doing to address these challenges?
c) On the other hand, what benefits/costs savings has DFAS seen and
expect to see as a result of the ERPs being implemented by the military
services?
Ms. Smith. a) DFAS is working diligently with the Military Services
and Defense Agencies to implement the Enterprise Resource Planning
(ERP) systems. Full software maturity is an evolutionary process and
the ERP ``out-of-the-box functionality'' in many cases does not include
the full operational capability of the legacy systems being replaced.
Legacy systems matured over decades to reach full operational capacity.
Similarly, incremental product enhancements are needed within the ERP
environment to reach full capability. As one of many users of the ERP
systems, DFAS is operating within risk tradeoff decisions that the ERP
functional sponsors and Programs Managers (PM) must make regarding
cost, schedule, and performance. When performance risk is accepted for
cost and schedule priorities, operational users experience ERP
implementations that do not effectively meet mission needs or are
easily integrated into current operational business practices. ERP
systems can also inadvertently reinforce the organizational status quo,
rather than contribute to significant organizational change when
implemented due to cost, schedule, and scope constraints. Finally,
regardless of the amount of planning, testing, and Business Process
Reengineering (BPR), challenges are not always realized and correctable
until the system is in production. Coupled with the risk tradeoffs are
the challenges of both complexity and size of the DOD. The DOD involves
complex functions to execute its mission, creating a vast scope to
deliver full operational capability. DFAS challenges arise when not all
mission essential capabilities of the legacy systems are included by
the ERP at implementation, thereby requiring the sustainment of legacy
systems concurrently with ERPs. Another contributing factor is that FM
requirements are only one of the ERP capabilities and priorities being
implemented. There are many sets of requirements competing for
priority: Human Resources, Acquisition, Real Property, Logistics,
Personnel & Readiness, and FM. When FM requirements are not met, system
capability gaps exist. To address these gaps, DFAS utilizes manual
workarounds or other interim processes pending the identification,
prioritization, and implementation of the needed FM requirements.
b) To tackle these challenges, DFAS continues to create better ways
to conduct business and improve the efficiency and effectiveness of
ERPs. DFAS is identifying essential information required for the
successful integration of the ERP systems into the DFAS mission during
and post-implementation of ERP systems. For each system implementation,
DFAS is coordinating, collaborating, and integrating with the ERP
Program offices to identify, and prioritize functions and processes to
increase the efficiency of the ERPs. DFAS advocates end-to-end testing
(E2E) methodology to ensure system interoperability, verifying the
overall process is integrated and flows correctly throughout the
systems. In ERP post-implementation environments, Joint Solutions Teams
(JSTs) are established to create and manage a centrally maintained
database of DFAS ERP post-implementation issues and lessons learned,
with a goal to develop shared solutions to common problems. The intent
is to also define and articulate DFAS' priorities for future system
development and to concentrate on resolving issues that will provide
the largest return for DFAS and its customers. Common DFAS issues
identified across an application (e.g., SAP, ORACLE, etc.) can also be
elevated directly to ERP software vendors to elicit a vendor-based
solution, such as the current 3 percent income tax withholding mandate.
In addition, there are also post-implementation opportunities to
optimize the ERP systems to both maximize inherent system capabilities
and facilitate process improvements. DFAS is focusing on ERP
optimization to perform BPR, implement incremental product enhancements
to the ERP systems, and leverage additional features within the
applications to enable business transformation. This effort goes hand
in hand with the culture of process improvement embedded within DFAS.
ERP systems are very complicated software packages that support entire
organizational activities, and DFAS is working in collaboration with
our customers to address these system challenges and move forward.
c) To date, the benefits that DFAS has seen include increased and
strengthened internal controls, improved business practices, and
increased reliability of financial data. The ERPs have standardized and
streamlined our business processes, provided a single source for
financial management information, and increased transparency and
accuracy of transaction level data allowing for more timely and better
decision making. Through these implementations, DFAS, in partnership
with our customers, has made progress towards changing our systems,
processes, and workforce to move us closer to improving financial
management practices across DOD and achieving audit readiness. As ERPs
continue to be fielded, we expect to achieve the benefits of
integrating business applications and functions to provide consistent,
single source data which can be traced and validated from the beginning
of the transaction entry to the financial statements. Other benefits
include more efficient and streamlined business processes, increased
compliance with the Federal Financial Management Improvement Act (FFMIA
including uniform use of the United States Standard General Ledger
(USSGL), and implementation of Standard Financial Information Structure
(SFIS) a common business language to support information and data
requirements for budgeting, financial accounting, cost/performance
management, and external reporting across the DOD enterprise. ERPs
provide more efficient data collection capabilities and an
infrastructure to support more timely responses to auditor's data
requests, and standardized financial reporting across DOD, thereby
reducing the cost of auditability. In the future years, we expect to
realize cost savings from legacy system retirements. DFAS, in
conjunction with our customers, will continue to embrace the challenges
and opportunities that exist with implementing new systems and maximize
the benefits derived in order to reach the goal of financial
improvement and auditability.
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