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entitled 'Homeland Security: Responses to Posthearing Questions Related 
to the Department of Homeland Security's Integrated Financial 
Management Systems Challenges' which was released on August 10, 2007. 

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August 10, 2007: 

The Honorable Tom Carper: 
Chairman: 
Subcommittee on Federal Financial Management, Government Information, 
Federal Services, and International Security: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

Subject: Homeland Security: Responses to Posthearing Questions Related 
to the Department of Homeland Security's Integrated Financial 
Management Systems Challenges: 

Dear Mr. Chairman: 

On June 28, 2007, we testified[Footnote 1] before your subcommittee at 
a hearing entitled, "Financial Management Systems Modernization at the 
Department of Homeland Security: Are Missed Opportunities Costing Us 
Money?" At the hearing, we discussed the Department of Homeland 
Security's (DHS) failed efforts to implement the Electronically 
Managing Enterprise Resources for Government Effectiveness and 
Efficiency (eMerge2) program that was expected to integrate financial 
management systems across the entire department. Our testimony and 
related report[Footnote 2] focused on (1) DHS's financial management 
systems modernization efforts, (2) key financial management system 
transformation challenges, and (3) the four building blocks that form 
the foundation for successful financial management system 
implementation efforts. 

This letter responds to your July 10, 2007, request for responses to 
follow-up questions relating to our June 28, 2007, testimony. The 
responses are based on work associated with previously issued GAO 
products. Your questions, along with our responses, follow. 

1. The Electronically Managing Enterprise Resources for Government 
Effectiveness and Efficiency (Emerge2) program began in January 2004 to 
integrate financial management systems across the Department. GAO will 
testify that the Department could not determine or support the cost of 
$52 million spent on the Emerge2 project. Prudently, Mr. Norquist 
declared the project "dead" before spending an estimated $229 million 
on a system that would not provide the desired functionality or 
performance. 

GAO has reported there are many long-standing problems that plague 
financial management system improvement efforts. 

* Is the Department not getting the message? 

* What needs to be done to get that message across? 

* How should the Department incorporate lessons learned to avoid 
unnecessary spending on projects doomed to fail? 

The consolidation of an entity as large and diverse as DHS poses 
significant management challenges, including integrating a myriad of 
redundant financial management systems and addressing existing and 
newly identified weaknesses in the inherited components. Our 
report[Footnote 3] noted that DHS had an inventory of over 500 
financial management systems and had inherited 18 material internal 
control weaknesses[Footnote 4] from agencies that were transferred to 
DHS. In order for DHS to avoid unnecessary spending on failed projects 
like eMerge2, it must adopt solutions that reduce the risks associated 
with these efforts to acceptable levels. We have identified four key 
concepts that will be critical to DHS's ability to successfully 
complete the implementation of an integrated financial management 
system. The four concepts are (1) developing a concept of operations 
document, (2) defining standard business practices, (3) developing an 
implementation or migration strategy, and (4) defining and effectively 
implementing disciplined processes necessary to properly manage the 
specific projects. Effective human capital management, such as 
strategic workforce planning and change management, is also identified 
as critical to successfully implementing a new financial management 
system. Our report provides specific recommendations aimed at helping 
DHS incorporate lessons learned and best practices. 

In comments on the draft report, and at the hearing held on June 28, 
2007, DHS officials indicated their willingness to adopt these 
recommendations and discussed the initiatives under way to do so. 
However, DHS's financial management system integration effort is in the 
early stages, and continued focus and commitment, among other things, 
will be necessary for it to be successful. 

2. The Department is required by law to prepare expenditure plans for 
information technology (IT) projects (such as United States Visitor and 
Immigration Status Indicator and Immigration and Customs Enforcement). 

* What level of oversight is needed and by whom? 

* In light of continued project failures, should expenditure plans be 
prepared, reviewed, and approved for the Transformation and Systems 
Consolidation (TASC) project in light of the Emerge2project failure? 

* Are expenditure plans an effective method for helping the Department 
meet cost, schedule, and performance objectives of its information 
technology projects? 

Expenditure plan reviews have proven to be an effective method of 
providing accountability for projects. For example, we recently 
reviewed[Footnote 5] DHS's Science and Technology (S&T) Directorate's 
Expenditure Plan, noting that the projected expenditures were not 
broken out and justified as required by law. The S&T Directorate was 
established by the Homeland Security Act of 2002 to, among other 
things, coordinate the federal government's civilian efforts to 
identify and develop countermeasures to emerging terrorist threats to 
our nation. Our review found that the S&T Directorate's fiscal year 
2007 expenditure plan, including related documentation and other 
information provided by S&T program officials, did not fully satisfy 
the conditions set forth in the Department of Homeland Security 
Appropriations Act of 2007.[Footnote 6] Specifically, management and 
administrative costs were not broken down by program, project, and 
activity (PP&A) as required by the Act. The Congress could use a 
similar expenditure plan approach to help provide oversight for DHS's 
Transformation and Systems Consolidation (TASC) project, particularly 
in light of the failed eMerge2 project. 

While expenditure plans can provide valuable and useful information, 
additional types of information are needed to fully assess the 
effectiveness of the processes being used to manage a project. For 
example, in addition to all project costs being correctly shown on an 
expenditure plan, the agency and others need assurance that (1) the 
risks associated with the project have been reduced to acceptable 
levels and (2) the future planned costs are realistic. These matters 
are best determined by effectively implementing the disciplined 
processes necessary to manage a given project. 

Further, given the importance of IT to DHS's mission performance and 
outcomes, it is vital for the department to adopt and employ an 
effective institutional approach to IT investment management. We have 
previously recommended[Footnote 7] that DHS devote the appropriate 
attention to the development and implementation of effective investment 
management processes. This includes fully defining and documenting 
project-and portfolio-level policies and procedures that oversee (i.e., 
control) IT projects and systems, including specifying the procedural 
rules for the investment boards' operations and decision-making during 
project oversight. Without this, DHS lacks the institutional capability 
needed to help ensure that it is investing in IT projects that best 
support its strategic mission needs and that ongoing projects will meet 
cost, schedule, and performance expectations. 

3. Most financial management modernization projects take a long time to 
complete, and many of the top leaders have a limited tenure, or a stove-
piped view. 

* In your view, is there a shared, department-wide view on how to move 
forward with financial management modernization? 

* Who within the Department has a sustainable, long-term view of 
financial management modernization? 

* Does this require top leadership buy-in? 

Regardless of the strategy DHS takes, sustained leadership will be key 
to a successful migration strategy for moving DHS toward a consolidated 
financial management system. In our Executive Guide: Creating Value 
Through World-class Financial Management,[Footnote 8] we found that 
leading organizations made financial management improvement an 
entitywide priority by, among other things, providing clear, strong 
executive leadership. We also reported that making financial management 
a priority throughout the federal government involves changing the 
organizational culture of federal agencies. Although the views about 
how an organization can change its culture can vary considerably, 
leadership (executive support) is often viewed as the most important 
factor in successfully making cultural changes. Top management, such as 
the Secretary, must be committed in both words and actions to changing 
the culture, and this commitment must be sustained and demonstrated to 
staff. Sustained and committed leadership will be a key factor in the 
successful migration of DHS's financial management systems. 

The federal government has faced a long-standing challenge of 
sustaining the momentum of transformation because of the limited tenure 
of key administration officials, and managing the transformation of an 
organization of the size and complexity of DHS requires comprehensive 
planning and integration of key management functions across the 
department. We have previously supported the establishment of a Chief 
Management Officer (CMO) position at DHS.[Footnote 9] The CMO would 
serve as the strategic, enterprisewide integrator of efforts to 
transform agency business operations, including financial management. 

Moreover, a concept of operations document with a clear definition and 
scope of the financial management activities to be included is another 
key element that can provide a shared, departmentwide view. A concept 
of operations defines how an organization's day-to-day operations are 
or will be carried out to meet mission needs. The concept of operations 
includes high-level descriptions of information systems, their 
interrelationships, and information flows. It also describes the 
operations that must be performed, who must perform them, and where and 
how the operations will be carried out. Our review[Footnote 10] of the 
concept of operations prepared as part of the eMerge2 project found 
that it lacked several key attributes called for by best practices. For 
example, the eMerge2 concept of operations did not take into 
consideration the over 500 financial management and related legacy 
systems in operation at DHS. Because of the large number of systems, 
DHS needs to define in its concept of operation (1) which legacy 
systems will be migrated to the new environment and (2) how this 
transition is envisioned to occur in order to achieve an integrated 
environment. Not only is this needed from an investment management 
point of view, it is a key element in addressing human capital 
challenges relating to change management strategies. DHS has recognized 
the importance of a well-defined concept of operations and is drafting 
one that it expects to address component-specific legacy systems and 
how they will interact or be replaced. 

4. During the Emerge2 program, the Department had identified over 7,000 
system and business requirements. Department officials believe many of 
these requirements are reusable for future information technology 
projects. However, GAO raised concerns about whether any of the 7,000 
requirements are salvageable. You have raised concerns about the 
ability of the Department to use some of the 7,000 requirements 
developed during its Emerge2 program for another project. 

* What are your concerns and could you outline possible remedies? 

* If the Department purchases a commercially available system, would 
this eliminate the need to develop requirements? 

Although DHS officials told us that they expect the requirements 
developed for eMerge2to be salvageable and provide a foundation for its 
future efforts, our review found that key requirements developed for 
eMerge2 did not have attributes associated with good requirements 
developed using best practices. The attributes of good requirements 
include being correct, unambiguous, complete, consistent, ranked for 
order of importance, verifiable, modifiable, and traceable. Some of the 
missing attributes of the eMerge[Footnote 2] requirements were clarity, 
traceability, and completeness. Most importantly, the eMerge2 
requirements were not based on (1) a good concept of operations, (2) 
reengineered business processes, and (3) an appropriate internal 
control structure. For example, we were unable to identify critical 
requirements relating to inventory in the eMerge2 documentation, even 
though DHS's fiscal year 2006 financial statements identified 
approximately $677 million in inventory and supplies. To help reduce 
the risks associated with consolidating its financial management 
systems, we recommended[Footnote 11] that DHS implement a disciplined 
requirements management process. DHS concurred with this 
recommendation, and we are encouraged that DHS recognized that 
attention is needed and is developing plans to address these financial 
management systems issues. 

Such detailed requirements are still necessary even with the 
acquisition of a commercial off-the-shelf (COTS) system to make sure 
the implementation decisions that are required to make the COTS package 
operational result in a system that addresses the needs of the users. 
Major commercial software packages, such as those being acquired by the 
Defense Logistics Agency, National Aeronautics and Space 
Administration, the Departments of the Army, Navy, and Health and Human 
Services, and others to improve their financial management operations, 
are similar to the ones DHS is contemplating and are extremely complex. 
Therefore, it is critical that DHS understands what its users want the 
system to do, in order to configure the system to ensure that its 
expectations are met. Fundamental to this effort is an understanding of 
the requirements that are needed to achieve the desired functionality. 

5. The main takeaway in GAO's testimony is that the Department needs to 
follow systematic methods or "disciplined processes." We continue to 
hear about failed federal agency projects due in large part to failures 
by agency managers to follow "disciplined processes." 

* Why are the Department managers not following these processes? 

* What actions are being taken to address this? 

* What is your recommendation about how to correct this problem? 

History has shown a direct relationship between the effectiveness of 
the processes used to manage a project and how well that project meets 
its cost, schedule, and performance objectives--projects with strong 
processes have a far greater probability of meeting their objectives 
than projects that have weak processes. These disciplined processes are 
based on the best practices identified by the Software Engineering 
Institute (SEI),[Footnote 12] the Institute of Electrical and 
Electronics Engineers, Inc. (IEEE),[Footnote 13] the Project Management 
Institute, and other experts, which have been proven to reduce the risk 
in implementing systems. A disciplined software implementation 
management process can maximize the likelihood of achieving the 
intended results (performance) within established resources (costs) on 
schedule. Moreover, it is critical to have the right people in the 
right place at the right time to efficiently apply disciplined 
processes. 

As we do more work in this area, we continue to find that the quality 
of these processes is a leading indicator of future successes and 
failures. These observations are consistent with those of experts 
reviewing private sector system development efforts. We previously 
recommended[Footnote 14] that the Office of Management and Budget (OMB) 
develop specific guidance for agencies on disciplined processes for 
financial systems implementation and provide a standard set of 
practices to guide the migrations from legacy systems to new systems 
and application service providers. OMB agreed with our recommendation 
and in September 2006 issued high-level guidance to federal agencies. 
The guidance identified various disciplined processes, such as project 
management, requirements management, and data conversion, to reduce the 
risks associated with financial management systems implementations. 
While OMB's guidance is a notable first step, more detailed guidance is 
needed to help ensure a consistent understanding of the needed 
processes. 

A key for DHS to avoid the long-standing implementation problems 
identified at other agencies is to successfully implement the 
recommendations in our report.[Footnote 15] These recommendations are 
consistent with OMB's high-level guidance. Toward this end, DHS has 
recognized the importance of disciplined processes, and acknowledged 
that the success of its efforts is predicated on having a disciplined 
set of processes from requirements development to acceptance. In 
comments on our draft report,[Footnote 16] DHS also indicated that it 
planned to add staff with program management and systems capabilities 
experience to manage its risks. 

6. We have been told that the long-term vision of the Department is to 
consolidate its financial management systems down to 2 from about 500. 
Mr. Norquist and Mr. Charbo testified that by 2011 97% of the 
Department will be on consolidated financial management systems. 
According to their testimony, they will move to Phase 2 and move the 
entire department to one financial management system. It is not clear 
what they mean by Phase 2. 

* What are your views on this two-phased approach that Mr. Norquist and 
Mr. Charbo have outlined? 

The scope of our review did not include an analysis of DHS's two-phased 
approach to consolidating financial management systems because DHS 
first announced this approach at the June 28, 2007, hearing. As noted 
in DHS's comments to our draft report,[Footnote 17] it expects to use 
several financial management systems for an extended period. For 
example, DHS noted that the systems used by the Secret Service and the 
Federal Law Enforcement Training Center were not going to be migrated 
to one of the two consolidated financial management systems until at 
least 2011. Accordingly, it is unclear whether one or more of these 
systems will also need to undergo major upgrades before they are 
transitioned to one of the two planned financial management systems. 
Significant cost, time, and effort are associated with maintaining and 
upgrading financial management systems over an extended period of time. 
Therefore, it is important to recognize that such an approach may 
result in excessive costs. 

7. OMB has recently taken over the responsibilities of the former Joint 
Financial Management Improvement Program (JFMIP) to perform tests on 
financial management systems or packages used by agencies to ensure 
that the packages met a set of "core requirements." Once the financial 
management packages pass the tests, OMB certifies them as "JFMIP 
compliant" and ready for use by the agencies. However, GAO has reported 
that agencies that have implemented these "certified" packages still 
had significant problems. 

* Has the OMB process for certifying financial management systems or 
packages improved agencies ability to successfully implement these 
systems? 

* In your view, have these "certified" systems helped the Department? 

The certification process has been helpful but it is just one part of 
the equation. First, the certification process covers a subset of the 
financial management requirements needed to meet the requirements 
called for in the Federal Financial Management Improvement Act (FFMIA) 
of 1996.[Footnote 18] Agencies must be mindful of this distinction. 
Second, agencies must fully understand that these packages are 
extremely complex and the user does not simply open a box, install the 
software, and turn it on. Agencies must make many decisions when 
installing these complex systems, and these decisions will affect the 
ultimate success of a project. An agency has little assurance that even 
though the package is certified, its implementation of a new system 
will also be compliant with FFMIA. This is due to (1) configuration 
decisions made during system implementation and (2) manual and non-COTS 
processes that are needed for successful implementation. While the 
certification tests are useful, federal agencies need to perform a 
great deal of their own testing to ensure that the system as ultimately 
implemented meets their needs and complies with FFMIA requirements. For 
example, although the COTS products adopted by DHS were tested and 
certified by JFMIP,[Footnote 19] DHS still needs to test whether the 
products were implemented in a manner that ensured the packages 
continued to comply with the federal financial management systems 
requirements. 

Further, the certification testing by necessity focuses on the 
technology portion of the equation. As noted in our report, each of the 
two financial management systems selected by DHS has significant 
material weaknesses, some of which were caused by factors outside the 
COTS package technology, such as people and process problems. 
Accordingly, DHS will also need to focus on these areas and correct 
these weaknesses before it can have reasonable assurance that its 
consolidation efforts will result in compliant systems. 

8. GAO and the Department auditors have reported since its inception 
that internal control and financial management weaknesses have 
prevented the Department from implementing successful financial 
management systems that improve Department business operations and 
provide accurate and reliable day-to-day financial and performance 
information. For fiscal years 2006 and 2005, the Department auditors 
were unable to provide an opinion on the Department consolidated 
financial statements. GAO points out in its report that achieving a 
"clean" opinion is not the end game. The Department needs to resolve 
its outstanding internal control issues. 

* How will obtaining a clean opinion on the Department's financial 
statements impact its financial management modernization? 

While there continues to be much focus on agency and governmentwide 
audit opinions, getting a clean audit opinion, though important in 
itself, is not the end goal. The end goal is the establishment of a 
fully functioning Chief Financial Officer (CFO) operation that includes 
(1) modern financial management systems that provide reliable, timely, 
and useful information to support day-to-day decision-making and 
oversight and for the systematic measurement of performance; (2) a 
cadre of highly qualified senior-level and supporting financial 
management staff; and (3) sound internal controls that safeguard assets 
and ensure proper accountability. Ultimately, DHS must be able to 
provide reliable, useful, and timely financial management information 
so that DHS leadership and the Congress are well-positioned to make 
fully informed decisions to secure America's homeland. Because of the 
10 material weaknesses reported[Footnote 20] by DHS financial statement 
auditors, DHS management, the Congress, and others do not have reliable 
financial data for managing the agency. It is imperative that DHS 
reengineer its processes across the agency as part of addressing these 
material weaknesses. 

In early March 2007, DHS officials issued a high-level plan to address 
these material weaknesses, referred to as the Internal Control Over 
Financial Reporting Playbook. However, the Playbook is not a 
comprehensive effort to address DHS's financial management systems 
needs because it is limited to financial statement preparation based on 
two tracks. The first track focuses on corrective action strategies for 
material weaknesses, and the second track focuses on building support 
for the Secretary's internal control over financial reporting assurance 
statement. Much more detail is needed to provide a financial management 
strategy or plan for integrating and modernizing DHS's financial 
management systems. In addition, it is important to fix the problems 
that are embedded in the existing financial management systems before 
other DHS components are migrated to the any of these systems. 

We are sending a copy of this report to the Secretary of Homeland 
Security, and other interested parties. This report is also available 
on GAO's home page at http://www.gao.gov. Should you have any questions 
on matters discussed in this report or need additional information, 
please contact McCoy Williams at (202) 512-9095 or at 
williamsm1@gao.gov or Keith A. Rhodes at (202) 512-6412 or at 
rhodesk@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. Major contributors to this report include Chris Martin, Senior- 
Level Technologist; Kay Daly, Assistant Director; Chanetta Reed; 
Francine DelVecchio; and Felicia Brooks. 

Sincerely yours, 

Signed by: 

McCoy Williams: 
Director: 

Signed by: 

Financial Management and Assurance: 
Keith A. Rhodes: 
Chief Technologist: 
Applied Research and Methods: 
Center for Technology and Engineering: 

(195121): 

FOOTNOTES 

[1] GAO, Homeland Security: Transforming Departmentwide Financial 
Management Systems Remains a Challenge, GAO-07-1041T (Washington, D.C.: 
June 28, 2007). 

[2] GAO, Homeland Security: Departmentwide Integrated Financial 
Management Systems Remain a Challenge, GAO-07-536 (Washington, D.C.: 
June 21, 2007). 

[3] GAO-07-536. 

[4] The definition of a material weakness is a significant deficiency, 
or combination of significant deficiencies, that results in more than a 
remote likelihood that a material misstatement of the financial 
statements will not be prevented or detected. 

[5] GAO, Department of Homeland Security: Science and Technology 
Directorate's Expenditure Plan, GAO-07-868 (Washington, D.C.: June 22, 
2007). 

[6] Pub. L. No. 109-295, 120 Stat. 1355, 1375 (2006). 

[7] GAO, Information Technology: DHS Needs to Fully Define and 
Implement Policies and Procedures for Effectively Managing Investments, 
GAO-07-424 (Washington, D.C.: Apr. 27, 2007). 

[8] GAO, Executive Guide: Creating Value Through World-class Financial 
Management, GAO/AIMD-00-134 (Washington, D.C.: April 2000). 

[9] GAO, Federal Financial Management: Critical Accountability and 
Fiscal Stewardship Challenges Facing Our Nation, GAO-07-542T 
(Washington, D.C.: Mar. 1, 2007). 

[10] GAO-07-536. 

[11] GAO-07-536. 

[12] SEI is a federally funded research and development center operated 
by Carnegie Mellon University and sponsored by the U.S. Department of 
Defense. The SEI objective is to provide leadership in software 
engineering and in the transition of new software engineering 
technology into practice. 

[13] IEEE is a nonprofit, technical professional association that 
develops standards for a broad range of global industries, including 
the information technology and information assurance industries, and is 
a leading source for defining best practices. 

[14] GAO, Financial Management Systems: Additional Efforts Needed to 
Address Key Causes of Modernization Failures, GAO-06-184 (Washington, 
D.C.: Mar. 15, 2006). 

[15] GAO-07-536. 

[16] GAO-07-536. 

[17] GAO-07-536. 

[18] Pub. L. No. 104-208, div. A., §101(f), title VIII, 110 Stat. 3009, 
3009-389 (Sept. 30, 1996). FFMIA requires the heads of the 24 major 
departments and agencies ("Chief Financial Officer (CFO) Act agencies") 
to maintain systems that comply substantially with three requirements: 
(1) federal financial management systems requirements, (2) federal 
accounting standards, and (3) the U.S. Standard General Ledger (SGL) at 
the transaction level. 

[19] The former Joint Financial Management Improvement Program (JFMIP) 
was formed under the Budget and Accounting Procedures Act of 1950, Pub. 
L. No. 81-784, § 111 (f), 64 Stat. 832, 835 (Sept. 12, 1950) (codified 
at 31 U.S.C. § 3511), as a joint and cooperative undertaking of GAO, 
the U.S. Department of the Treasury, OMB, and Office of Personnel 
Management (OPM), working in cooperation to improve financial 
management practices in the federal government. In an effort to 
eliminate duplicative roles and streamline financial management 
improvement efforts, some of the former responsibilities of the JFMIP 
were placed under the Financial Systems Integration Office. (See OMB, 
Realignment of Responsibilities for Federal Financial Management Policy 
and Oversight, Memorandum (Washington, D.C.: Dec. 2, 2004)). As a 
result of the realignment, JFMIP ceased to exist as a separate 
organization, although the principals will continue to meet at their 
discretion. 

[20] Department of Homeland Security, Performance and Accountability 
Report Fiscal Year 2006 (Washington, D.C.: November 2006). 

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