FROM THE OFFICE OF PUBLIC AFFAIRS

Chairwoman Johnson, Representative Coyne, and members of the Subcommittee, thank you for the opportunity to appear today to discuss the Department of the Treasury's progress on the Year 2000 computer problem. The Department of the Treasury has stated that the Year 2000 computer problem is our highest priority information technology challenge. I am confident that Treasury has a strong program in place to address this challenge, and while there is much work ahead of us, we have made significant progress to date.

The Assistant Secretary for Management and CFO has overall responsibility for the Year 2000 date transition. As Deputy Assistant Secretary (Information Systems) and CIO, I am the overall program manager for the Year 2000 effort. The day-to-day responsibilities of the Year 2000 program reside within my office. In addition, Treasury has contracted with several firms with specialized skills in the Year 2000 problem, and these firms are assisting the Department in its oversight role. Attached to this statement are copies of the Year 2000 Program Organization at the Department of the Treasury.

Secretary of the Treasury Rubin is briefed periodically on the status of our Year 2000 program, and the Assistant Secretary for Management and CFO and myself meet weekly with bureau heads to review their Year 2000 progress. Working groups meet regularly for the IT, Non-IT, and Telecommunications components of our program. The Department requires each bureau and office to submit detailed monthly status reports. Additionally, the Secretary of the Treasury has mandated that each bureau and office head select an executive official to be in charge of their Year 2000 program. This individual, typically at the CIO or CFO level or higher, is responsible for ensuring that the Year 2000 program at their bureau or office is completed in a timely manner. I would now like to describe the overall status of Treasury's Year 2000 program, some successes we have experienced, and some remaining challenges we must address.

Treasury has identified 323 mission critical IT systems and 269 mission critical Non-IT systems. At present, we have renovated 133, or 54.7% of the mission critical IT systems that need to be converted. We can now report 125 out of 323 (38.7%) of the total mission critical IT systems are now Year 2000 compliant.

I believe that, as a Department, we have made significantly more progress than has been indicated by the above figures. We are conservatively not reporting progress until entire systems have been renovated and tested. For example, the Customs Service, like the IRS, manages its renovation efforts by components. Customs has three mission critical systems, all of which require repair, which included 186 components. Although we report none of these three Customs mission critical IT systems as completed renovation, testing, or implementation, the fact is that 68.5% of the components within these systems have been renovated, 35.3% have been tested, and 25% have been implemented.

Treasury operates one of the largest enterprise telecommunications networks in the Government. This Treasury Enterprise System includes both local and nationwide telecommunications systems. My office is directly responsible for the Year 2000 compliance of these telecommunications systems.

The Digital Telecommunications System (DTS) is an integrated voice/data local telephone system in over 30 Treasury locations that serves over 30,000 Treasury employees. Treasury has established a phased implementation schedule so that DTS will be Year 2000 compliant by September 1998.

The Treasury Communications System (TCS) is a nationwide data network serving all Treasury bureaus and some Federal agencies (such as Justice). The TCS provides multiple services and is the largest secure, private wide-area network in the U.S. civilian Government. We have established a test laboratory where each component of the TCS network can be tested, both as an independent system, and from an interoperability perspective as each component is interconnected with other components. Treasury is coordinating the Year 2000 issues with the manufacturer of each piece of equipment and software incorporated in the TCS network and expects to be operationally Year 2000 compliant on or before 30 September 1998.

In order to address these challenges, a Year 2000 Telecommunications "Command Center" has been established to serve as a central location for telecommunications activities, including the Telecommunications Executive Body and Working Group meetings. Charts and graphs depicting current hardware and software status of each corporate telecommunications program, the independent verification and validation (IV&V) testing process, and overall progress tracking are displayed prominently for use by program managers and executives. To further promote communications among the CIO, Executive Body, program areas, working groups and bureaus, the Department has established a telecommunications site on the Treasury Year 2000 Intranet web site. In addition, Treasury has engaged a telecommunications company to perform independent verification and validation (IV&V) of the telecommunications infrastructure with respect to Year 2000 compliance.

Since the kickoff of the Treasury Non-IT Working Group on August 28, 1997, Non-IT efforts have been continuing. The management planning and the definition of bureau and office specific Treasury Year 2000 Non-IT management plans began on October 16, 1997. These plans are based on the standard plan format, overall process, and content requirements as defined in the Treasury Year 2000 Non-IT Baseline Management Plan, dated October 16, 1997. This Treasury plan has been used as a model by the General Services Administration (GSA) for addressing Non-IT systems.

The Non-IT effort is supported by a central Non-IT database, on the Treasury Intranet Year 2000 site, which provides a tracking tool to determine the compliance status of vendor products. As of March 6, 1998, Treasury bureaus and offices had identified 6,898 external data exchanges, of which 3,169 were incoming and 3,729 were outgoing. The Department has assessed 6,878 out of 6,898 (99.7%) of these external data exchanges, and found that 87.3% are Year 2000 compliant or have been granted a waiver. Of the 2,551 interfaces with the US private sector, Treasury bureaus and offices thus far have contacted 2,446 and reached agreements with 2,391.

In our regulatory and oversight roles, the Office of Thrift Supervision (OTS) and the Office of the Comptroller of the Currency (OCC) are participating on the Federal Financial Institutions Examinations Council (FFIEC) with aggressive programs to audit financial institutions' compliance on Year 2000.

At the Department level, coordination on Year 2000 data exchanges has been ongoing with other government agencies. Treasury has held a series of meetings with executives and staffs from the Department of Defense and the Department of Agriculture's National Finance Center to address and resolve data exchange issues and readiness for Year 2000 testing.

In early 1996, Treasury established September 1998 as a program milestone date for the completion of contingency plans. During a series of meetings with bureau and offices heads in June 1997, the Department emphasized the need for contingency planning and asked the bureaus and offices to accelerate their schedules for the development of these plans. Since then, Year 2000 Contingency Management Plans have been developed at several bureaus and offices for mission critical IT systems and components. Factors such as failure date, time to implement, dependencies, interfaces, resources, responsible office, impact, and criteria for invoking the plans are included. The bureaus' and offices' contingency planning efforts will be expanded to address Non-IT mission critical systems and telecommunications items.

In spite of our best efforts to date and our aggressive plans for the future, the Year 2000 problem is far from solved. Indeed, several significant key issues pose special challenges for us, and possibly for other Government agencies as well. One issue that concerns us is vendor schedules for Year 2000 compliant versions of their commercial off-the-shelf hardware and software products. Some vendors have yet to release Year 2000 compliant upgrades of their products. While we are continuing to work on our renovation efforts, our testing cannot be completed until we have obtained and integrated the Year 2000 compliant third-party versions of these products.

Treasury's cost estimates for fixing the Year 2000 computer problem have continued to rise. In our submission to OMB for the February 15, 1998, report, we estimated a total cost of $1.43 billion, with the bulk of that cost being incurred in this fiscal year. Our cost estimates were initially based in large part on a Year 2000 cost model that focused on costs associated with mainframe lines of code. In the period since those initial estimates were provided, Treasury bureaus and offices have made significant progress in their inventory and cost estimate efforts for repairing and testing IT items, telecommunications items, and Non-IT items. In the February 15, 1998, quarterly report, we estimated Non-IT program costs of $68.6 million, and $295 million for telecommunications costs.

In addition to funding challenges, we must also contend with the increasing rate of attrition within our information systems workforce. Skilled programmers -- especially those with skills in legacy system platforms -- are in strong demand within the private sector, which can pay significantly higher salaries than the Government. I believe that Treasury has an aggressive overall Year 2000 program in place, and we are on target to complete the conversion, testing, validation, and implementation of all mission critical systems in time to avoid disruption to any critical systems. Nothing less than 100% compliance will be acceptable to the American public, or to me personally.

Thank you for the opportunity to meet with you today to discuss the actions being taken by the Department of the Treasury in addressing the Year 2000 computer problem. I will be happy to answer any questions you may have regarding this important matter.