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United States Government Accountability Office:

GAO:

Report to the Subcommittee on Federal Financial Management, Government 
Information, Federal Services, and International Security, Committee on 
Homeland Security and Governmental Affairs, U.S. Senate:

June 2007:

Homeland Security:
Departmentwide Integrated Financial Management Systems Remain a 
Challenge:

GAO-07-536:

GAO Highlights:

Highlights of GAO-07-536, a report to the Subcommittee on Federal 
Financial Management, Government Information, Federal Services, and 
International Security, Committee on Homeland Security and Governmental 
Affairs, U.S. Senate

Why GAO Did This Study:

Since the Department of Homeland Security (DHS) began operations in 
March 2003, it has faced the daunting task of bringing together 22 
diverse agencies and developing an integrated financial management 
system to provide timely, reliable, and useful financial information. 
GAO was asked to determine (1) whether DHS has fully developed plans 
for implementing and/or migrating to an integrated departmentwide 
financial management system, (2) the potential usefulness of the work 
products received for the funds spent on the financial modernization 
effort, and (3) going forward, how DHS can incorporate best practices 
into its plans for migrating to an integrated departmentwide financial 
management system. GAO interviewed key DHS officials, reviewed relevant 
DHS policy and procedure documents, and analyzed work products related 
to the financial modernization effort. 

What GAO Found:

DHS has not yet developed a financial management strategy and plan to 
move forward with its financial management system integration efforts. 
In early March 2007, DHS officials issued a plan to address existing 
internal control weaknesses, but this plan is at a high level and more 
detailed implementation strategies will be necessary to fully address 
the financial management systems challenges. With Office of Management 
and Budget (OMB) approval, DHS indicated that it has decided to migrate 
components to internal service providers using selected financial 
management systems models currently in place at two components. 
However, the components that DHS is considering have material financial 
management weaknesses. 

The Electronically Managing Enterprise Resources for Government 
Effectiveness and Efficiency (eMerge2) program that was expected to 
integrate financial management systems across the entire department and 
address financial management weaknesses was halted in December 2005. 
DHS has stated that it had spent about $52 million in total for the 
eMerge2 project, including approximately $18 million of contractor 
costs, but the department did not provide support for these amounts. 
According to DHS officials, several of the work products developed for 
eMerge2 will be useful as they move forward with their financial 
management modernization efforts, regardless of the strategic financial 
management direction ultimately selected by DHS. GAO’s review indicated 
that key work products are of limited value. The concept of operations 
did not contain an adequate description of the legacy systems and a 
clear articulation of the vision that should guide the department’s 
improvement efforts, and key requirements developed for the project are 
unclear and incomplete. 

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. In order for 
DHS to avoid long-standing problems that have plagued financial 
management system improvement efforts at other agencies and not repeat 
the failure of eMerge2, it must adopt solutions that reduce the risks 
associated with these efforts to acceptable levels. Based on best 
practices, there are four key building blocks that will be critical to 
DHS’s ability to successfully complete its financial transformation: 
(1) developing a concept of operations, (2) defining standard business 
processes, (3) developing a migration and/or implementation strategy 
for DHS components, and (4) defining and effectively implementing 
disciplined processes necessary to properly manage the specific 
projects. Moreover, effective human capital management is critical to 
the success of systems implementations. Having staff with the 
appropriate skills is key to achieving financial management 
improvements, and managing an organization’s employees is essential to 
achieving results.

What GAO Recommends:

To help reduce the risks associated with a departmentwide financial 
management system implementation effort, GAO makes six recommendations 
focused on the need for DHS to define a departmentwide financial 
management strategy and embrace best practices to foster systems 
development, including key human capital practices. DHS concurred with 
GAO’s recommendations.

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-536].

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact McCoy Williams at (202) 
512-9095 or Keith Rhodes at (202) 512-6412.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

DHS Lacks a Fully Developed Financial Management Strategy and Plan:

eMerge2 Costs Are Unknown and Work Products Have Limited Usefulness:

Four Key Building Blocks and Effective Human Capital Management Must 
Drive DHS's Financial Management Transformation Efforts:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Scope and Methodology:

Appendix II: Material Weaknesses/Reportable Conditions at DHS for 
Fiscal Years 2003 through 2006:

Appendix III: Key Questions for the Department of Homeland Security to 
Consider Based on the Four Building Blocks:

Appendix IV: Disciplined Processes:

Appendix V: Comments from the Department of Homeland Security:

Appendix VI: GAO Contacts and Staff Acknowledgments:

Related GAO Products:

Figures:

Figure 1: eMerge2 Project Timeline:

Figure 2: DHS Systems Inventory:

Figure 3: Relationship between Requirements Development and Testing:

Abbreviations:

AICPA: American Institute of Certified Public Accountants: 
BPMN: business process modeling notation: 
CBP: U.S. Customs and Border Protection: 
CFO: Chief Financial Officer: 
COTS: commercial-off-the-shelf: 
CRP: conference room pilot: 
DHS: Department of Homeland Security: 
DOT: Department of Transportation: 
eMerge2: Electronically Managing Enterprise Resources for Government 
Effectiveness and Efficiency: 
EPR: Emergency Preparedness and Response: 
ERP: enterprise resource planning: 
FEMA: Federal Emergency Management Agency: 
FFMIA: Federal Financial Management Improvement Act of 1996: 
FLETC: Federal Law Enforcement Training Center: 
ICE: U.S. Immigration and Customs Enforcement: 
ICOFR: Internal Control Over Financial Reporting: 
IEEE: Institute of Electrical and Electronics Engineers: 
INS: U.S. Immigration and Naturalization Service: 
IT: information technology: 
OCFO: Office of the Chief Financial Officer: 
OFM: Office of Financial Management: 
OGC: Office of the General Counsel: 
OMB: Office of Management and Budget: 
OM&S: operating materials and supplies: 
PP&E: property, plant, and equipment: 
RMTO: Resource Management Transformation Office: 
SEI: Software Engineering Institute: 
TSA: Transportation Security Administration: 
UDO: undelivered order:

United States Government Accountability Office:

Washington, DC 20548:

June 21, 2007:

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

Since the Department of Homeland Security (DHS) began operations in 
March 2003, as mandated by the Homeland Security Act of 2002,[Footnote 
1] it has faced the daunting task of bringing together 22 diverse 
agencies and developing an integrated financial management system. 
Since 2003, we have designated implementing and transforming DHS as 
high risk[Footnote 2] because the agency has yet to implement a 
corrective action plan that includes a comprehensive transformation 
strategy, and because its management systems--especially related to 
financial, information, acquisition, and human capital management--are 
not yet integrated and wholly operational. DHS inherited many financial 
management weaknesses and vulnerabilities from 22 agencies. Auditors 
had identified 30 reportable conditions,[Footnote 3] 18 of which were 
considered material internal control weaknesses[Footnote 4] in fiscal 
year 2003.

DHS began implementation of the Electronically Managing Enterprise 
Resources for Government Effectiveness and Efficiency (eMerge2) program 
in January 2004 to integrate financial management systems across the 
entire department and to address the financial management weaknesses. 
eMerge2 was expected to establish the strategic direction for 
migration, modernization, and integration of DHS financial, accounting, 
procurement, personnel, asset management, and travel systems, 
processes, and policies. DHS officials have stated that approximately 
$52 million in total was spent on the eMerge2 project before it was 
halted in December 2005. DHS officials are considering other options to 
provide integrated financial management systems and are assessing the 
capabilities of financial management systems at various internal 
components. In March 2006, we reported[Footnote 5] that DHS was at an 
important crossroads in implementing a financial management system, and 
we discussed the necessary building blocks that form the foundation for 
successful financial management system implementation efforts. As DHS 
moves forward, periodic independent updates on the status of financial 
management modernization that aligns with a comprehensive 
transformation strategy are important to help key congressional leaders 
and DHS management provide effective oversight. Moreover, 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.

You asked us to establish baseline information on DHS's financial 
management system modernization and to periodically update the status 
of these efforts. This report, our first in response to your request, 
provides an assessment of the status of DHS's efforts to modernize its 
financial management systems. Because of your concern about DHS's 
successful implementation of an integrated financial management system, 
you also asked us to determine (1) whether DHS has fully developed 
plans for implementing and/or migrating to an integrated departmentwide 
financial management system, (2) the potential usefulness of the work 
products received for the funds spent on eMerge2, and (3) going 
forward, how DHS can incorporate key building blocks and human capital 
best practices into its plans for implementing and/or migrating to an 
integrated departmentwide financial management system.

This report incorporates lessons learned and best practices from our 
prior work that focused on federal government financial management 
system implementation efforts. We interviewed key DHS officials and 
reviewed their existing policies and procedures related to financial 
management systems. We analyzed and reviewed eMerge2 work products as 
well as related current financial management initiatives under way. Our 
work on this report was performed in Washington, D.C., from September 
2006 through April 2007 in accordance with generally accepted 
government auditing standards. Details on our scope and methodology are 
included in appendix I. Related GAO reports are listed at the end of 
this report.

Results in Brief:

While DHS officials have recognized the need for an integrated 
financial management system, no financial strategy or integrated 
financial management systems effort that includes financial management 
policies and procedures, standard business processes, a human capital 
strategy, and effective internal controls has been developed. Moreover, 
DHS has experienced significant turnover in leadership, has yet to 
address the root causes of existing financial management problems, and 
still lacks a financial management strategy that includes a formal 
strategic financial management plan to implement or migrate to an 
integrated system.

In early March 2007, DHS officials issued a high-level plan with a 
stated purpose of addressing the existing internal control weaknesses. 
While a positive step, the plan has a policy and process focus and does 
not comprise a strategy for financial systems modernization. More 
detailed implementation strategies will be necessary to fully address 
the financial management system integration efforts. DHS recognizes 
that there is an urgent need for an integrated financial management 
system, and told us that after assessing the capabilities of existing 
financial management systems at several of its components, it has 
decided to consolidate its financial management systems. In commenting 
on a draft of this report, DHS indicated that it plans to leverage its 
current investments by migrating components to internal service 
providers using the financial management systems models currently in 
place at either the Transportation Security Administration 
(TSA[Footnote 6]) or U.S. Customs and Border Protection (CBP). Our 
concern is that these components have numerous financial management 
weaknesses. For example, the financial statement auditors for TSA 
report[Footnote 7]ed that the agency was unable to provide sufficient 
evidential matter or make knowledgeable representations to support 
fiscal year 2005 and 2006 transactions and account balances, 
particularly for budgetary accounting; undelivered orders; and 
property, plant, and equipment, among others.

According to DHS officials, several of the work products developed for 
eMerge2 will be useful as they move forward with their financial 
management modernization efforts, regardless of the strategic financial 
management direction ultimately selected by DHS. However, our review 
indicated that the usefulness of many of the eMerge2 work products is 
questionable. The work products developed include a core set of 
financial management system requirements and various other qualitative 
financial management plans, including a concept of operations document. 
Our review of the core set of financial management requirements and 
concept of operations developed for the eMerge2 project found that DHS 
had not fully incorporated best practices in this effort, and therefore 
it is not surprising that the results were significantly flawed and the 
work products were not very useful. For example, the concept of 
operations document lacked critical elements called for by the 
Institute of Electrical and Electronics Engineers, Inc. (IEEE) 
standards,[Footnote 8] such as providing a detailed description of the 
existing system(s) that DHS planned to replace. In addition, our review 
of key eMerge2 requirements identified requirements that were unclear 
and incomplete when compared with the attributes called for in the IEEE 
standards.[Footnote 9] DHS has little to show for the $18 million in 
contractor costs and $52 million overall it reported to us that it 
spent on eMerge2. DHS did not provide documentation to support these 
reported costs. DHS's decision to end the project before spending an 
estimated $229 million on a financial management system that would not 
provide the expected system functionality and desired performance was 
prudent, and we support the decision to cut its losses. However, the 
agency has made little progress since that time and has missed an 
invaluable opportunity to address existing financial management 
problems.

As we previously reported,[Footnote 10] 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. The federal government has long been plagued by 
financial management system modernization efforts that have failed to 
meet their cost, schedule, and performance goals. In order for DHS to 
avoid these long-standing problems that have plagued financial 
management system improvement efforts and avoid repeating the mistakes 
it made with eMerge2, it must adopt solutions that reduce the risks 
associated with these efforts to acceptable levels. In our March 2006 
testimony,[Footnote 11] we identified four key concepts that will be 
critical to DHS's ability to successfully complete the implementation 
of an integrated financial management system or migration to shared 
service providers. Careful consideration of these concepts, each one 
building upon the next, will be integral to the success of DHS's 
strategy. The four building blocks are (1) developing a concept of 
operations, (2) defining standard business processes, (3) developing an 
implementation or migration strategy for DHS components, 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. DHS officials recognize the importance of 
having sufficient staff on board to execute a financial management 
strategy, but because DHS does not currently have a financial 
management system project in place, it has not yet developed human 
capital plans and activities. As DHS develops a financial management 
plan or strategy, careful consideration of key human capital practices 
will be a critical success factor.

We are making six recommendations focused on the need for DHS to 
develop a financial management plan or strategy and to fully adopt the 
building blocks and human capital practices that are vital to 
minimizing the risk related to modernizing its financial management 
systems. In written comments on a draft of this report, DHS concurred 
with our recommendations and described the approach and steps that are 
planned to improve DHS's financial management systems. DHS's comments 
are discussed in the Agency Comments and Our Evaluation section and 
reprinted in appendix V. DHS also provided several technical comments, 
which we incorporated as appropriate.

Background:

When DHS was created in March 2003 and merged 22 diverse agencies, 
there were many known financial management weaknesses and 
vulnerabilities in the inherited agencies. For 5 of the agencies that 
transferred to DHS--Customs Service (Customs),[Footnote 12] TSA, 
Immigration and Naturalization Service (INS),[Footnote 13] Federal 
Emergency Management Agency (FEMA), and Federal Law Enforcement 
Training Center (FLETC)--auditors had identified 30 reportable 
conditions, 18 of which were considered material internal control 
weaknesses. Further, of the four component agencies--Customs, TSA, INS, 
and FEMA--that had previously been subject to stand-alone financial 
statement audits, all four agencies' systems were found not to be in 
substantial compliance with the requirements of the Federal Financial 
Management Improvement Act of 1996 (FFMIA).[Footnote 14]

Most of the 22 components that transferred to DHS had not been 
subjected to significant financial statement audit scrutiny prior to 
their transfer, so the extent to which additional significant internal 
control deficiencies existed was unknown. For example, conditions at 
the Coast Guard surfaced because of its greater relative size and 
increased audit scrutiny at DHS as compared to its former legacy 
agency, the Department of Transportation (DOT). As part of DOT's 
financial statement audit, the Coast Guard had no specifically 
attributable reported weaknesses identified. However, identified 
weaknesses related to the Coast Guard were one of the main reasons that 
the independent auditors were unable to provide an opinion on DHS's 
consolidated balance sheets as of September 30, 2006 and 2005. The 
auditors identified numerous material weaknesses related to fund 
balance with treasury; property, plant, and equipment; and budgetary 
accounting. Moreover, the auditors reported that the Coast Guard did 
not have an organizational structure that fully supported the 
development and implementation of effective policies, procedures, and 
internal controls. The Coast Guard's personnel rotation policy, among 
other issues, made it difficult for the Coast Guard's Chief Financial 
Officer to institutionalize internal controls related to financial 
management and reporting.

As noted above, material internal control weaknesses have been an 
ongoing problem at DHS since its inception, and these material internal 
control weaknesses and financial reporting problems continued in fiscal 
year 2006. We previously reported[Footnote 15] that for fiscal year 
2003, the DHS financial statement auditors reported 14 total reportable 
conditions, 7 of which were considered to be material weaknesses. In 
fiscal year 2006, while the total number of reportable conditions 
decreased to 12, the number of reportable conditions considered to be 
material weaknesses increased to 10. A description of the material 
weaknesses as identified by the auditors in fiscal years 2003 through 
2006 can be found in appendix II. Some of the more recent material 
weaknesses identified by the auditors include problems with fund 
balance with treasury, budgetary accounting, and intergovernmental 
balances.

The DHS Financial Accountability Act of 2004[Footnote 16] made DHS 
subject to the Chief Financial Officers Act of 1990 (CFO Act),[Footnote 
17] which requires DHS to issue audited financial statements, among 
other things. In fiscal year 2006, the DHS financial statement auditors 
issued a disclaimer of opinion because the scope of their work was not 
sufficient to express an opinion given the seriousness of DHS's 
financial management problems. DHS's Inspector General engaged the 
auditors to audit the balance sheet and statement of custodial activity 
for the fiscal year that ended September 30, 2006. The auditors were 
not engaged to audit DHS's statements of net costs, changes in net 
position, budgetary resources, and financing for the years ended 
September 30, 2006 and 2005, because the Office of Financial 
Management, Coast Guard, TSA, FEMA, U.S. Immigration and Customs 
Enforcement (ICE), and the Management Directorate were unable to 
provide sufficient evidence to support account balances presented in 
the financial statements. In fiscal year 2006, DHS's financial 
statement auditors also reported[Footnote 18] that DHS was not in 
compliance with the CFO Act as well as other key financial management 
reform legislation, such as the Federal Managers' Financial Integrity 
Act of 1982[Footnote 19] and FFMIA. Resolving all reported internal 
control weaknesses, addressing serious financial management systems 
deficiencies, and complying with financial management reform 
legislation are key to DHS's ability to produce relevant and reliable 
financial information that will enable it to better manage the 
department and provide accountability.

DHS Lacks a Fully Developed Financial Management Strategy and Plan:

The eMerge2program that was expected to integrate financial management 
systems across the entire department and address financial management 
weaknesses was a failure, and DHS wisely halted the project in December 
2005. Since that time and 4 years after the creation of the agency, DHS 
is still contemplating various financial management options. DHS has 
yet to clearly define a financial management strategy and plan to move 
forward with its financial management system modernization efforts. 
Such a plan is needed to address the fundamental financial management 
problems that have existed since the agency was created. In early March 
2007, DHS officials issued a high level plan, which DHS stated was 
intended to address existing internal control weaknesses. While a first 
step, more detailed implementation strategies and plans will be 
necessary to fully address the financial management systems challenges.

DHS officials told us they have decided to consolidate the department's 
financial management systems. DHS and Office of Management and Budget 
(OMB) officials told us that OMB approved DHS's decision to rely on its 
in-house core financial management operations. DHS officials within the 
Office of the Chief Financial Officer stated that they were performing 
an internal assessment of the financial management systems being used 
by the components and revisiting current internal financial service 
providers, such as the Coast Guard, to determine whether they can 
leverage those resources. The systems used by TSA and CBP were some of 
the internal DHS systems being considered. Recent plans call for the 
Coast Guard to move to the TSA systems model. In accordance with this 
approach, DHS officials told us that they have plans to develop three 
or four shared service providers using the existing component financial 
management systems. Some of the services may include information 
technology (IT) hosting,[Footnote 20] business process 
services,[Footnote 21] and application management services.[Footnote 
22] However, DHS did not provide documentation or evidence of the 
internal assessment that it was conducting or when it would be 
completed. In commenting on a draft of this report, DHS indicated that 
it was focusing on two current systems already in use at TSA and CBP 
and how to migrate other DHS components to those systems.

The components that DHS is considering as systems models have material 
financial management weaknesses and consequently do not appear to be 
good candidates to be the models used by an entity with an annual 
budget in excess of $40 billion. While DHS has corrective action plans 
under way to address identified weaknesses, most of the component core 
financial management systems are unable to produce reliable, useful, 
and timely financial information. The auditors have not been able to 
issue an opinion on DHS's financial statements since the agency was 
created in 2003. For example, in fiscal year 2006, TSA, one of the 
proposed internal systems models, was unable to provide sufficient 
evidential matter or make knowledgeable representation of facts and 
circumstances to the DHS financial statement auditors to support 
transactions and account balances of TSA for amounts reported on DHS's 
balance sheet. Specifically, TSA was unable to support transactions 
related to property and equipment, accrued unfunded employee leave, 
accounts payable, and components of net position. In addition, the 
auditors reported that TSA did not have sufficient processes and 
procedures to enable the successful completion of a financial statement 
audit in fiscal years 2005 and 2006. In commenting on a draft of this 
report, DHS officials stated that TSA's audit shortcomings were 
centered on policies and procedures, not systems-oriented problems. 
However, our analysis of the auditor's report indicated that the 
problems were broad based. As DHS pointed out in its comments, success 
in financial management rests upon a comprehensive framework of people, 
policy, process, systems, and assurance. Accordingly, it is imperative 
that DHS understand the policy and procedure weaknesses at TSA in order 
to prevent such weaknesses from affecting subsequent users.

Further, the Coast Guard, TSA's current shared service provider, was 
unable to provide sufficient evidential matter or make knowledgeable 
representations of facts and circumstances to the DHS financial 
statement auditors, to support transactions and account balances of the 
Coast Guard for amounts reported on DHS's balance sheet. The Coast 
Guard was unable to support transactions related to fund balance with 
treasury; accounts receivable; actuarially-derived liabilities; 
environmental and legal liabilities; operating materials and supplies; 
certain categories of property, plant, and equipment; undelivered 
orders and changes in net position; and adjustments, both manual and 
automated, made as part of the Coast Guard's financial reporting 
process. The Coast Guard was also unable to complete corrective 
actions, and make adjustments, as necessary, to these and other balance 
sheet amounts, prior to the completion of the DHS 2006 Performance and 
Accountability Report. The total assets of the Coast Guard, as reported 
on the DHS balance sheet as of September 30, 2006, were $12.5 billion, 
or 16 percent of total DHS consolidated assets. In addition, the 
auditors reported that the Coast Guard does not have an organizational 
structure that fully supports the development and implementation of 
effective policies, procedures, and internal controls. Consequently, to 
the extent that the shared service approach is sustained, it will be 
critical for DHS to avoid replicating these weaknesses and ineffective 
policies and procedures at other components.

According to DHS officials, migration is only one component of an 
improvement program and can be costly, risky, and very disruptive. We 
agree that implementation of any financial management system brings a 
degree of risk. This is magnified when an organization has a range of 
serious problems as is the case with DHS. Our report[Footnote 23] 
summarizing financial management systems implementation problems at 
other federal agencies established that failure to effectively follow 
best practices was a key shortcoming that lead to failure to meet cost, 
schedule, and performance goals. Later in this report, we offer our 
perspective on how DHS can embrace these best practices to minimize 
these risks as it moves forward.

Managing the transformation of an organization of the size and 
complexity of DHS requires comprehensive planning, integration of key 
management functions across the department, and partnering with 
stakeholders across the public and private sectors. On September 13, 
2006, the department's CFO testified before the Congress that DHS's 
goals for improving its financial systems have not changed and a major 
effort remains to improve all of its resource management systems. 
Rather than focus only on systems, the CFO testified that the 
department was currently developing an overarching strategy to address 
challenges in the areas of people, process, policy, systems, and 
assurances to achieve the department's goals of obtaining a clean audit 
opinion, establishing sound internal controls, and improving the 
efficiency of financial operations. The CFO stated that DHS understands 
that some systems are aging; that some fail to meet all user 
requirements; and that some are not fully integrated with finance, 
procurement, and asset management. To meet these needs, the DHS CFO 
reported that DHS is building a financial management framework. The CFO 
said that the centerpiece of the effort to improve agency financial 
processes and address the existing financial management problems is 
DHS's Internal Controls Over Financial Reporting (ICOFR) Playbook, 
released in March 2007. DHS officials have reported that the ICOFR 
Playbook draws from internal control best practices to establish a 
management control program that measures performance and provides 
accountability for improvement. DHS officials expect the ICOFR Playbook 
to guide DHS ahead for the next several years through fundamental 
financial management improvement across the spectrum of financial 
activities supporting the agency's mission.

We found that the ICOFR Playbook does not contain adequate detail to 
clarify the approach that DHS plans to take to modernize its financial 
management systems. For example, the ICOFR Playbook focuses on 
financial statement preparation and only includes 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. In its 
comments on a draft of this report, DHS officials acknowledged that the 
ICOFR Playbook is at the policy and process level and does not comprise 
a specific strategy for financial systems modernization. Much more 
detail is needed to provide a financial management strategy or plan for 
integrating and modernizing DHS's financial management systems. 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 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 staff; and (3) sound internal controls that 
safeguard assets and ensure proper accountability.

eMerge2 Costs Are Unknown and Work Products Have Limited Usefulness:

Although DHS stated that it had spent about $52 million in agency costs 
for the eMerge2 project, including approximately $18 million of 
contractor costs, it did not provide adequate support for these 
amounts. Moreover, DHS believes that the eMerge2 funds spent will 
benefit its future financial management modernization efforts since a 
number of the work products can still be used. However, our review of 
two key items--a concept of operations document and system 
requirements--found that they have significant deficiencies and will be 
of little use for future efforts. Specifically, the concept of 
operations does not contain an adequate description of the legacy 
systems and a clear articulation of the vision that should guide the 
department's improvement efforts, while key requirements developed for 
the project are unclear and incomplete. Based on best practices that 
form the foundation for successful financial management systems 
implementation, DHS will have little assurance that its future efforts 
will meet their cost, schedule, and performance goals. These issues are 
discussed in greater detail later in this report.

Actual Costs of eMerge2 Are Unknown:

DHS officials told us they ended the eMerge2 program because (1) the 
project fell behind schedule and (2) the contactor could not meet 
established performance goals. We were unable to confirm the estimated 
$52 million in eMerge2 program costs because DHS officials did not 
provide adequate supporting evidence to document this amount after 
repeated GAO requests. eMerge2 was expected to establish the strategic 
direction for migration, modernization, and integration of DHS 
financial, accounting, procurement, personnel, asset management, and 
travel systems, processes, and policies. DHS officials began working on 
the project in late fiscal year 2003. DHS contracted with Bearing 
Point, Inc. (Bearing Point) to develop the functional and technical 
eMerge2 requirements. These requirements were approved by all DHS 
components in May 2004. Based on these requirements, DHS developed a 
Request for Quotation for the acquisition and implementation of eMerge2.

In September 2004, after a competitive acquisition process, Bearing 
Point was awarded a blanket purchase agreement with a ceiling of about 
$229 million to acquire and implement the eMerge2 solution. The first 
task order was issued under the agreement for solution development and 
conference room pilot (CRP) testing.[Footnote 24] Bearing Point began 
the CRP initiative in November 2004, and soon into work on this task 
order, concerns began to arise regarding the extent to which there was 
a clear understanding between DHS and Bearing Point on exactly what was 
to be delivered. In December 2004, DHS officials formally communicated 
their concerns to Bearing Point by requesting a performance improvement 
plan. In January 2005, Bearing Point submitted a performance 
improvement plan. According to DHS officials, Bearing Point missed 
deadlines, and some products presented to the eMerge2 project team were 
deemed unacceptable. In February 2005, the DHS CFO conducted a review 
of the eMerge2 effort. DHS chose not to exercise the next contract 
option, and the Bearing Point contract to acquire and implement eMerge2 
expired in December 2005. See figure 1 for a summary of the eMerge2 
timeline. In March 2006, DHS's Deputy CFO testified[Footnote 25] that 
eMerge2 was taking a new direction in that the department was going to 
perform an internal assessment of existing financial management systems 
at the component level to determine whether resources could be 
leveraged. DHS officials also reported that they were going to review 
the OMB Financial Management Line of Business initiative to assess 
whether migration to a shared service provider was a feasible option. 
Finally, in September 2006, the newly appointed CFO stated that eMerge2 
was officially "dead."

Figure 1: eMerge2 Project Timeline:

[See PDF for image]

Source: GAO. 

[End of figure]

eMerge2 Work Products Have Limited Future Usefulness:

According to DHS officials, several of the work products developed 
during eMerge2 will benefit its future financial management 
modernization efforts. These products included a concept of operations 
and over 7,000 requirements. A review of these two critical products 
found that they will not provide much assistance to future efforts 
since they do not contain the attributes normally associated with such 
documents. The concept of operations document we reviewed did not 
include all the important elements and the requirements did not flow 
from the concept of operations. Moreover, key requirements (1) lacked 
the IEEE characteristics associated with good requirements; (2) did not 
incorporate the functionality associated with inventories, supplies, 
and materials; and (3) did not consider appropriate internal control. 
Accordingly, these documents will have to undergo significant rework 
before they can be used in future efforts.

The Concept of Operations Document Is Flawed:

Our review of the DHS concept of operations found that it did not have 
the types of information expected when compared to best practices. As 
we noted in March 2006, a concept of operations defines how an 
organization's day-to-day operations are (and 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. Further, it provides the foundation on which 
requirements definitions and the rest of the systems planning process 
are built. Normally, a concept of operations document is one of the 
first documents to be produced during a disciplined development effort 
and flows from both the vision statement and the enterprise 
architecture. According to IEEE standards,[Footnote 26] a concept of 
operations is a user-oriented document that describes the 
characteristics of a proposed system from the users' viewpoint. The key 
elements that should be included in a concept of operations are major 
system components, interfaces to external systems, and performance 
characteristics, such as speed and volume.

Our review of the DHS concept of operations found that it lacked 
several key attributes called for by best practices. For example, DHS 
officials stated that the guiding principles of the functional vision 
for the eMerge2 program focused on the "to-be" state and that they did 
not attempt to document the "as-is" state. As noted in the IEEE 
standard, the "as-is" environment is normally captured or depicted in 
the concept of operations document. In the case of DHS this is 
especially important since when the eMerge2 project began, DHS had 
identified over 500 financial management and related systems in 
operation and much of its operational history was contained in legacy 
systems data files. Figure 2 provides a summary of DHS's systems 
inventory by resource functions.

Figure 2: DHS Systems Inventory:

[See PDF for image]

Source: DHS. 

[End of figure]

Due to the large number of systems, DHS needs to define in its concept 
of operations (1) which legacy systems will be migrated to the new 
environment and (2) conceptually how this transition is envisioned to 
occur in order to achieve an integrated environment. As we noted in our 
March 2006 testimony,[Footnote 27] the transition strategy outlined in 
the concept of operations is useful for developing an understanding of 
how and when changes will occur. Not only is this needed from an 
investment management point of view, it is a key element in addressing 
human capital problems relating to change management strategies. Simply 
saying "all systems will be migrated to the new environment" does not 
provide an understanding of how this transition will take place or 
provide the necessary specificity to help the concept of operations 
serve as the foundation for the requirements management process. For 
example, should DHS decide to develop and implement a standard budget 
system that includes both formulation and execution, it would need to 
ensure that the new budget system achieved the functionality associated 
with over 60 existing budget legacy systems.

eMerge2 System Requirements Are Deficient:

Although DHS officials told us that they expected the requirements 
developed for eMerge2 to be salvageable and provide a foundation for 
its future efforts, our review found that key requirements did not have 
attributes associated with good requirements developed using best 
practices. Requirements are specifications that system developers and 
program managers use to design, develop, and acquire a system. They 
need to be carefully defined, consistent with one another, verifiable, 
and directly traceable to higher level business or functional 
requirements. 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.

In our March 2006 report,[Footnote 28] we noted that business process 
models provide a way of expressing the procedures, activities, and 
behaviors needed to accomplish an organization's mission and are 
helpful tools to document and understand complex systems. Business 
processes are the various steps that must be followed to perform a 
certain activity. For example, the procurement process would start when 
the agency defines its needs and issues a solicitation for goods or 
services, and would continue through contract award and receipt of 
goods and services, and would end when the vendor properly receives 
payment. The identification of preferred business processes is critical 
for the standardization of applications and training and portability of 
staff.

DHS officials reportedly developed approximately 33 business processes 
across five business domains[Footnote 29] using Business Process 
Modeling Notation (BPMN)[Footnote 30] during the eMerge2 effort. While 
DHS officials stated that they placed an emphasis on business processes 
when capturing requirements, their business process emphasis focused on 
the "to-be" state versus the "as-is" state. However, industry standards 
suggest that it is important to model the processes currently in 
operation ("as-is") because it allows an organization to discover the 
existing core business processes. An organization needs to be fully 
aware of its existing core business processes because reassessment of 
those processes is necessary to ensure continued value and capability 
in a new system. In order to maximize the success of a new system, 
redesigning the current business processes while promoting consistency 
through the development of standard business processes is essential for 
a large and complex agency like DHS. Identifying or developing 
preferred business processes for standardization of applications and 
training and portability of staff also helps when selecting the 
appropriate software that best reflects the preferred business 
processes.

Since DHS has not defined its standard business processes, it is 
unclear whether the requirements are valid because some of the 
requirements are process specific and we were unable to test the 
linkage between requirements and DHS business processes. DHS developed 
over 7,000 external requirements and derived requirements. The external 
requirements were compiled based upon externally mandated laws and 
regulations. The derived requirements were compiled based upon business 
process modeling that incorporated external requirements, business 
rules, leading practices, known deficiencies, roles, data objects, and 
interface requirements. The derived requirements were also organized by 
the five functional domains noted above. However, even assuming that 
the requirements were "linked" to the processes that DHS would like to 
employ, many of the key requirements did not have the attributes 
associated with good requirements. The following are examples of the 
requirements problems we noted.

* One requirement stated that "the system must calculate gross pay, 
deductions, net pay, employee, and employer contributions for each 
employee on an effective pay period basis." The requirement is 
unnecessary because all of DHS's components have migrated payroll 
processing functions to the Department of Agriculture's National 
Finance Center. Moreover, the requirement does not address basic 
questions, such as (1) which payroll system will perform this function, 
(2) how is the gross pay amount defined, and (3) what deductions must 
be supported (taxes, retirement, employee allotments, etc.)

* Another requirement stated that "the bottom line of this 
reconciliation would be the net cost of operations defined." It is 
unclear what reconciliation is being performed and how the net cost of 
operations is defined or which other requirement provided this formula.

* We were unable to identify critical requirements relating to 
inventory. According to DHS's fiscal year 2006 statements, the 
department held about $677 million in inventory and supplies. Basic 
requirements, such as determining the inventory valuation method and 
ensuring that inventory items transferred between DHS locations retain 
their historical cost basis, were not included. These are critical 
items for maintaining visibility of assets and the financial 
presentation process.

* All requirements were considered "equal." For example, some 
requirements were simply the language used in a given law or regulation 
while other requirements appeared to be intended to provide additional 
specificity to those requirements. However, these related requirements 
were not "linked" in such a manner that made these relationships clear. 
One approach that can be used is to provide a hierarchal structure. 
Under this concept, the general requirements are at one level while the 
more specific requirements are at a lower level and linked to the 
higher level requirements. This process maintains the necessary 
traceability (another best practice concept) between the 
requirements.[Footnote 31]

DHS officials have stated that the eMerge2 requirements did not 
consider the internal control structure. OMB's Core Financial System 
Requirements[Footnote 32] have several mandatory requirements that must 
be considered when migrating or implementing the system management 
function in federal financial management systems. Some of these 
requirements include accounting classification, document and 
transaction control, system generated transactions, and audit trails. 
OMB Circular No. A-123, Management's Responsibility for Internal 
Control, requires agencies to operate systems with appropriate internal 
controls to ensure accuracy of data, completeness and consistency of 
transaction processing, and adequate reporting. Automatic internal 
control capabilities needed to meet the provisions of Circular No. A- 
123 are expected to be integrated into financial management systems. 
For example, requirements that specify validations to be performed on 
invoice data before they can be certified as ready for payment and 
system-enforced separation of duties are some of the basic control 
activities that are expected to be integrated into a financial 
management system. As we have noted in numerous reports, requirements 
management problems are a leading cause of systems that do not meet 
their cost, schedule, and functionality objectives. (See our related 
GAO products section at the end of this report).

Four Key Building Blocks and Effective Human Capital Management Must 
Drive DHS's Financial Management Transformation Efforts:

Based on industry best practices, we have identified four key building 
blocks that will be critical to DHS's ability to successfully complete 
its financial transformation. Our March 2006 testimony[Footnote 33] 
pointed out that careful consideration of these four concepts, each one 
building upon the former, will be integral to the success of DHS's 
strategy. The four concepts are (1) developing a concept of operations, 
(2) defining standard business processes, (3) developing a migration 
and/or implementation strategy for DHS components, and (4) defining and 
effectively implementing disciplined processes necessary to properly 
manage the specific projects. Fully embracing these four building 
blocks and human capital best practices will be critical to the success 
of any future financial management plan or strategy that addresses 
implementing and/or migrating to an integrated departmentwide financial 
management system at DHS. DHS also has an opportunity to reap 
substantial benefits by reengineering business processes and 
standardizing those processes so that productivity gains and staff 
portability across the various components are realized. In addition, 
identifying staff with the requisite skills to implement such systems 
and identifying gaps in needed staff skills and filling them are 
necessary to successfully implement and operate a new financial 
management system. Any financial management plan or strategy 
implemented by DHS will be complex and challenging, making the adoption 
of best practices even more important for this undertaking. We will now 
highlight the key issues to be considered for each of the four areas 
and human capital. Moreover, detailed key questions for DHS to consider 
related to each concept can be found in appendix III.

Concept of Operations Provides Foundation:

As we discussed previously, 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. Further, it provides the foundation on which 
requirements definitions and the rest of the systems planning process 
are built. Normally, a concept of operations document is one of the 
first documents to be produced during a disciplined development effort 
and flows from both the vision statement and the enterprise 
architecture. According to the IEEE standards,[Footnote 34] a concept 
of operations is a user-oriented document that describes the 
characteristics of a proposed system from the users' viewpoint. The key 
elements that should be included in a concept of operations are major 
system components, interfaces to external systems, and performance 
characteristics, such as speed and volume.

Another key element of a concept of operations is a transition strategy 
that is useful for developing an understanding of how and when changes 
will occur. Not only is this needed from an investment management point 
of view, it is a key element in the human capital problems discussed 
previously that revolved around change management strategies. 
Describing how to execute DHS's approach for implementing a new system 
or migrating to shared service providers, as well as the processes that 
will be used to deactivate legacy systems that will be replaced or 
interfaced with a new financial management system, are key aspects that 
need to be addressed in a transition strategy.

Standard Business Processes Promote Consistency:

Business process models provide a way of expressing the procedures, 
activities, and behaviors needed to accomplish an organization's 
mission and are helpful tools to document and understand complex 
systems. In our view, an agency's mission must drive the business 
processes and the resulting financial information is a derivative of 
these processes. Moreover, business processes are the various steps 
that must be followed to perform a certain activity. For example, the 
procurement process would start when the agency defines its needs and 
issues a solicitation for goods or services, and would continue through 
contract award and receipt of goods and services, and would end when 
the vendor properly receives payment. As we discussed earlier in this 
report, the identification of preferred business processes would be 
critical for standardization of applications and training and 
portability of staff.

To maximize the success of a new system acquisition, organizations need 
to consider the redesign of current business processes. As we noted in 
our Executive Guide: Creating Value Through World-class Financial 
Management,[Footnote 35] leading finance organizations have found that 
productivity gains typically result from more efficient processes, not 
from simply automating old processes. Moreover, the Clinger-Cohen Act 
of 1996 requires agencies to analyze the missions of the agency and, 
based on the analysis, revise mission-related and administrative 
processes, as appropriate, before making significant investments in IT 
used to support those missions.[Footnote 36] Another benefit of what is 
often called business process modeling is that it generates better 
system requirements, since the business process models drive the 
creation of information systems that fit in the organization and will 
be used by end users. Other benefits include providing a foundation for 
agency efforts to describe the business processes needed for unique 
missions and developing subprocesses to support those at the 
departmentwide level.

Strategy for Consolidating and Migrating Financial Management Systems 
Will Be Key:

Although DHS officials have stated that they plan to consolidate their 
financial management systems, the department has not yet articulated a 
detailed plan for achieving this goal. In the context of consolidating 
financial management operations, which will include migrating to a 
selected systems model, critical activities include (1) developing 
specific criteria for requiring component agencies to migrate to one of 
the providers rather than attempting to develop and implement their own 
stove-piped business systems; (2) providing the necessary information 
for a component agency to select a DHS-approved financial management 
system; (3) defining and instilling new values, norms, and behaviors 
within component agencies that support new ways of doing work and 
overcoming resistance to change; (4) building consensus among customers 
and stakeholders on specific changes designed to better meet their 
needs; and (5) planning, testing, and implementing all aspects of the 
transition from one organizational structure and business process to 
another.

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, 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 totally committed in both words and actions to 
changing the culture, and this commitment must be sustained and 
demonstrated to staff. As pressure mounts to do more with less, to 
increase accountability, and to reduce fraud, waste, abuse, and 
mismanagement, and efforts to reduce federal spending intensify, 
sustained and committed leadership will be a key factor in the 
successful migration of DHS's financial management systems.

Disciplined Processes Will Help Ensure Successful Implementation:

Once the concept of operations and standard business processes have 
been defined and a migration or implementation strategy is in place, 
the use of disciplined processes will be a critical factor in helping 
to ensure that the implementation is successful. The key to avoiding 
long-standing implementation problems is to provide specific guidance 
to component agencies for financial management system implementations, 
incorporating the best practices identified by the Software Engineering 
Institute, the IEEE, the Project Management Institute, and other 
experts that have been proven to reduce risk in implementing systems. 
Such guidance should include the various disciplined processes, such as 
requirements management, testing, data conversion and system 
interfaces, risk and project management, and related activities, which 
have been problematic in the financial systems implementation projects 
we and others have reviewed.

Disciplined processes have been shown to reduce the risks associated 
with software development and acquisition efforts to acceptable levels 
and are fundamental to successful system implementations. The 
principles of disciplined IT systems development and acquisition apply 
to shared services implementation, such as that contemplated by DHS. A 
disciplined software implementation process can maximize the likelihood 
of achieving the intended results (performance) within established 
resources (costs) on schedule. For example, disciplined processes 
should be in place to address the areas of data conversion and 
interfaces, two of the many critical elements necessary to successfully 
implement a new system--the lack of which has contributed to the 
failure of previous agency efforts. Further details on disciplined 
processes can be found in appendix IV. Inadequate implementation of 
disciplined processes can manifest itself in many ways when 
implementing a financial management system. Full deployment has been 
delayed at some agencies and specific functionality has been delayed or 
flawed at other agencies.

Strong Human Capital Management Needed at DHS:

Effective human capital management is critical to the success of 
systems implementations. As we reported in our Executive Guide: 
Creating Value Through World-class Financial Management,[Footnote 37] 
having staff with the appropriate skills is key to achieving financial 
management improvements, and managing an organization's employees is 
essential to achieving results. The independent public accountants that 
conducted DHS's fiscal year 2006 audit have stated that many of the 
department's difficulties in financial management and reporting can be 
attributed to the original stand-up of a large, new, and complex 
executive branch agency without adequate organizational expertise in 
financial management and accounting. Moreover, DHS's Resource 
Management Transformation Office (RMTO) officials have stated that 
outside contractors are currently performing some of the financial 
management activities or duties that internal DHS staff would normally 
perform because of staffing shortages. Having adequate and sufficient 
human resources with the requisite training and experience to 
successfully implement a financial management system is a critical 
success factor.

Our work[Footnote 38] has identified significant human capital issues, 
including the lack of IT expertise, that have affected financial 
systems implementation at other agencies. Some of the human capital 
problems we identified that have hampered the implementation of new 
financial management systems include incomplete strategic workforce 
planning and ongoing staff shortages as well as untrained staff. By not 
identifying staff with the requisite skills to implement such systems 
and by not identifying gaps in needed skills and filling them, agencies 
reduce their chances of successfully implementing and operating a new 
financial management system. Further, OMB guidance[Footnote 39] 
requires agencies to have qualified project managers for major IT 
investments.

Strategic human capital management for financial management projects 
includes organizational planning, staff acquisition, and team 
development. Human capital planning is necessary for all stages of the 
system implementation. It is important that agencies incorporate 
strategic workforce planning by (1) aligning an organization's human 
capital programs with its current and emerging mission and programmatic 
goals and (2) developing long-term strategies for acquiring, 
developing, and retaining an organization's total workforce to meet the 
needs of the future. As we have recently testified,[Footnote 40] some 
of the most pressing human capital challenges at DHS include (1) 
successfully completing its ongoing transformation; (2) forging a 
unified results-oriented culture across the department; (3) obtaining, 
developing, providing incentives to, and retaining needed talent; and 
(4) most importantly, leadership at the top, to include a chief 
operating officer or chief management officer. The federal government 
has always faced the 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.

Conclusions:

GAO and others have found that the key to implementing systems that 
meet cost, schedule, and performance objectives is to have effectively 
implemented the disciplined processes necessary to reduce risks to 
acceptable levels. DHS has not yet taken the first step, which is to 
define a formal financial management strategy that addresses the 
fundamental financial management problems that have existed since the 
agency's creation. Ending eMerge2 was a judicious decision; however, we 
are concerned that DHS still lacks a clearly defined financial 
management strategy or financial management systems implementation 
effort to even begin to address DHS's integration and transformation 
issues as reported in our most recent high-risk report. Furthermore, 
because DHS is one of the largest and most complex executive branch 
agencies in the federal government, developing, operating, maintaining, 
and modernizing its financial management systems represent a monumental 
challenge. This challenge is compounded by DHS's newness and the poor 
condition of the range of legacy financial and related business systems 
it inherited. To that end, critical success factors include utilizing 
the four building blocks and human capital best practices to provide 
reasonable assurance that the risks associated with implementing a 
departmentwide integrated financial management system are minimized. 
Otherwise, DHS runs the risk of repeating the failure of eMerge2.

Recommendations for Executive Action:

To help reduce the risks associated with a departmentwide financial 
management system implementation effort, we recommend that the 
Secretary of DHS demonstrate commitment to integrating DHS's financial 
management systems and direct the Undersecretary for Management and 
Chief Financial Officer to take the following six actions. This would 
entail placing a high priority on fully integrating into its approach 
the following concepts and underlying key issues, which are related to 
the fundamental disciplined processes typically utilized in systems 
implementation.

* Clearly define and document a departmentwide financial management 
strategy and plan to move forward with its financial management system 
integration efforts.

* Fully embrace the four building blocks and best practices when 
developing and documenting the strategy and plan to foster the 
development of an integrated financial management system that meets 
expected performance and functionality targets. This would include the 
following:

* Developing a comprehensive concept of operations document:

* Reengineering business processes and standardizing them across the 
department, including applicable internal control:

* Developing a detailed plan for consolidating and migrating various 
DHS components to an internal shared services approach if this approach 
is sustained:

* Utilizing and implementing the specific disciplined processes below 
to minimize project risk:

1. Requirements management:

2. Testing:

3. Data conversion and system interfaces:

4. Risk management:

5. Configuration management:

6. Project management:

7. Quality assurance:

* Carefully consider key human capital practices as DHS moves forward 
with its financial management transformation efforts so that the right 
people with the right skills are in place at the right time.

Agency Comments and Our Evaluation:

We received written comments on a draft of this report from DHS, which 
are reprinted in appendix V. DHS concurred with our recommendations and 
described the actions it has taken or plans to take to improve 
financial management systems and departmentwide financial 
accountability. As DHS moves forward to address the recommendations in 
our report, it is important that it prioritize its efforts and focus on 
the concepts and key issues we discussed, such as clearly documenting 
and defining a departmentwide financial management systems integration 
strategy and implementing disciplined processes. We are encouraged that 
DHS has recognized that attention is needed and is developing plans to 
address these financial management systems issues. It is critical that 
the departmentwide financial management strategy is documented and 
stresses the importance of a standard set of business processes. We 
continue to believe that careful consideration of all the building 
blocks and key issues we identified will be integral to the success of 
DHS's financial management systems integration efforts. DHS also 
provided technical comments, which we incorporated as appropriate.

As arranged with your offices, unless you announce the contents of this 
report earlier, we will not distribute it until 30 days from its date. 
Then we will send copies of this report to interested congressional 
committees. We will also send copies to the Secretary of Homeland 
Security, the DHS Under Secretary for Management, and the DHS Chief 
Financial Officer. Copies will be made available to others upon 
request. In addition, this report will also be available at no charge 
on GAO's Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please 
contact McCoy Williams, Director, Financial Management and Assurance, 
who may be reached at (202) 512-9095 or by e-mail at 
williamsm1@gao.gov, or Keith A. Rhodes, Chief Technologist, Applied 
Research and Methods, who may be reached at (202) 512-6412 or by e-mail 
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. GAO staff who made major contributions to this report are 
listed in appendix VI.

Signed by: 

McCoy Williams: 
Director: 
Financial Management and Assurance:

Signed by: 
Keith A. Rhodes: 
Chief Technologist: 
Applied Research and Methods: 
Center for Technology and Engineering:

[End of section]

Appendix I: Scope and Methodology:

To determine whether the Department of Homeland Security (DHS) has 
developed plans for implementing and/or migrating to an integrated 
departmentwide financial management system, we interviewed key DHS 
officials, reviewed relevant DHS's Resource Management Transformation 
Office's (RMTO) policy and procedure documents, and analyzed the 
Electronically Managing Enterprise Resources for Government 
Effectiveness and Efficiency (eMerge2) work products related to the 
financial modernization effort. We reviewed DHS performance and 
accountability reports, particularly the Management Discussion and 
Analysis section, to determine whether there were any financial 
management system modernization initiatives under way. We also reviewed 
the Office of Management and Budget (OMB) Exhibit 300, and relevant 
contractor files and procurement data.

To assess the potential usefulness of work products received for funds 
spent on eMerge2 efforts, we interviewed DHS officials and analyzed 
relevant DHS eMerge2planning documents, the eMerge2 requirements 
database, and RMTO policy and procedure documents. We evaluated the key 
information in the requirements database by selecting requirements that 
focused on accounting and financial reporting issues. Based on our 
analysis, we concluded that the requirements we reviewed were unclear 
and incomplete. As a result, we determined it would not be useful for 
DHS's future efforts to integrate financial management systems. We also 
reviewed Bearing Point, Inc.'s contractor files to determine the nature 
and scope of contractual services provided by the systems integrator. 
We requested but did not receive invoices and other documents to 
support amounts spent on eMerge2. Accordingly we were unable to test 
amounts DHS officials told us were spent on the project. As a result we 
are unable to provide any assurance on the accuracy of these amounts.

To provide our views on how DHS can incorporate key building blocks and 
human capital best practices into its plans for migrating to an 
integrated departmentwide financial management system going forward, we 
reviewed our prior reports and material from key industry groups and 
national experts to identify any potential solutions posed by those 
groups, lessons learned, and relevant best practices.

We conducted our work in Washington, D.C., from September 2006 through 
April 2007, in accordance with U.S. generally accepted government 
auditing standards. We did not evaluate the federal government's 
overall information technology strategy or whether DHS selected the 
most appropriate financial management systems approach. We are making 
recommendations to DHS in this report. We requested comments on a draft 
of this report from the Secretary of DHS or his designee. Written 
comments from the Department of Homeland Security are reprinted in 
appendix V and evaluated in the "Agency Comments and Our Evaluation" 
section.

[End of section]

Appendix II: Material Weaknesses/Reportable Conditions at DHS for 
Fiscal Years 2003 through 2006:

Table 1:

Number: 1; Material weakness/reportable conditions: Financial 
management and oversight: DHS's Office of the Chief Financial Officer 
(OCFO) needs to establish financial reporting roles and 
responsibilities, assess critical needs, and establish standard 
operating procedures for the department. These conditions were not 
unexpected for a newly created organization, especially one as large 
and complex as DHS. The Coast Guard and the Strategic National 
Stockpile had weaknesses in financial oversight that have led to 
reporting problems; 2003: Yes; 2004: Yes; 2005: Yes; 2006: Yes.

Number: 2; Material weakness/reportable conditions: Financial 
reporting: Key controls to ensure reporting integrity were not in 
place, and inefficiencies made the process more error prone. At the 
Coast Guard, the financial reporting process was complex and labor- 
intensive. Several DHS bureaus lacked clearly documented procedures, 
making them vulnerable if key people leave the organization; 2003: Yes; 
2004: Yes; 2005: Yes; 2006: Yes.

Number: 3; Material weakness/reportable conditions: Financial systems 
security: The auditors found weaknesses across DHS in its entitywide 
security program management and in controls over system access, 
application software development, system software, segregation of 
duties, and service continuity. Many bureau systems lacked certain 
functionality to support the financial reporting requirements; 2003: 
Yes; 2004: Yes; 2005: Yes; 2006: Yes.

Number: 4; Material weakness/reportable conditions: Property, plant, 
and equipment (PP&E): The Coast Guard was unable to support the 
recorded value of $2.9 billion in PP&E due to insufficient 
documentation provided prior to the completion of audit procedures, 
including documentation to support its estimation methodology. The 
Transportation Security Administration lacked a comprehensive property 
management system and adequate policies and procedures to ensure the 
accuracy of its PP&E records; 2003: Yes; 2004: Yes; 2005: Yes; 2006: 
Yes.

Number: 5; Material weakness/reportable conditions: Operating materials 
and supplies (OM&S) and seized property: Internal controls over 
physical counts of OM&S were not effective at the Coast Guard. As a 
result, the auditors were unable to verify the recorded value of $497 
million in OM&S. The Coast Guard also had not recently reviewed its 
OM&S capitalization policy, leading to a material adjustment to its 
records when an analysis was performed. The Coast Guard Inventory 
Control Point physical inventory procedures lacked key elements of an 
effective physical inventory; 2003: Yes; 2004: Yes; 2005: Yes; 2006: 
Yes.

Number: 6; Material weakness/reportable conditions: Actuarial 
liabilities: The Secret Service did not record the pension liability 
for certain employees and retirees, and when corrected, the auditors 
had insufficient time to audit the amount recorded. The Coast Guard 
does not have adequate policies, procedures, and controls to ensure the 
completeness and accuracy of the data necessary for the calculation of 
actuarial liabilities; 2003: Yes; 2004: [Empty]; 2005: Yes; 2006: Yes.

Number: 7; Material weakness/reportable conditions: Transfers of funds, 
assets, and liabilities to DHS: DHS lacked controls to verify that 
monthly financial reports and transferred balances from legacy agencies 
were accurate and complete; 2003: Yes; 2004: [Empty]; 2005: [Empty]; 
2006: [Empty].

Number: 8; Material weakness/reportable conditions: Fund Balance with 
Treasury: The Coast Guard has not designed and implemented policies, 
procedures, and internal controls, including effective reconciliations 
and the use of a financial system that complies with Federal Financial 
System Requirements, as defined in OMB No. Circular A-127 and the 
requirements published by the Joint Financial Management Improvement 
Program; 2003: [Empty]; 2004: Yes; 2005: Yes; 2006: Yes.

Number: 9; Material weakness/reportable conditions: Legal and other 
liabilities: The Office of Financial Management (OFM), in association 
with the Office of the General Counsel (OGC), has not implemented 
adequate policies and procedures to ensure that OFM is provided with 
sufficient information to accurately and completely present legal 
liabilities and related disclosures in the financial statements 
throughout the year; 2003: [Empty]; 2004: [Empty]; 2005: [Empty]; 2006: 
Yes.

Number: 10; Material weakness/reportable conditions: Intragovernmental 
and intradepartmental balances: Immigration and Customs Enforcement 
(ICE), Emergency Preparedness and Response (EPR) and Coast Guard have 
not developed and adopted effective standard operating procedures, or 
established systems, to completely track, confirm, and reconcile intra- 
DHS balances and/or transactions with trading partners in a timely 
manner; 2003: [Empty]; 2004: Yes; 2005: Yes; 2006: Yes.

Number: 11; Material weakness/reportable conditions: Undelivered orders 
(UDO), accounts and grants payable, and disbursements: ICE had 
difficulty maintaining accurate records relating to obligations and 
UDOs and did not establish sufficient controls to prevent duplicate 
payments; 2003: [Empty]; 2004: Yes; 2005: Yes; 2006: [Empty].

Number: 12; Material weakness/reportable conditions: Financial 
management structure: OCFO has not provided the DHS bureaus with 
sufficient management oversight and timely policy guidance to address 
accounting and reporting issues that cross multiple bureaus and affect 
the efficiency of bureau financial accounting and reporting operations; 
2003: [Empty]; 2004: Yes; 2005: [Empty]; 2006: [Empty].

Number: 13; Material weakness/reportable conditions: Budgetary 
accounting: DHS lacked effective internal controls for validation and 
verification of UDO balances to ensure that recorded obligations were 
valid, and recorded in a timely manner, and that proper approval and 
supporting documentation is maintained; 2003: [Empty]; 2004: Yes; 2005: 
Yes; 2006: Yes.

Source: GAO based on DHS performance and accountability report(s).

[End of table]

[End of section]

Appendix III: Key Questions for the Department of Homeland Security to 
Consider Based on the Four Building Blocks:

Table 2:

Building block: Concept of operations; Key questions: * What is 
considered a financial management system? Are all the components using 
a standard definition?; * Who will be responsible for developing a DHS- 
wide financial management concept of operations, and what process will 
be used to ensure that the resulting document reflects the 
departmentwide solution rather than individual component agency stove- 
piped efforts?; * How will DHS's concept of operations be linked to its 
enterprise architecture?; * How can DHS obtain reliable information on 
the costs of its financial management systems investments?.

Building block: Standard business process; Key questions: * Who will be 
responsible for developing DHS-wide standard business processes that 
meet the needs of its component agencies?; * How will the component 
agencies be encouraged to adopt new processes, rather than selecting 
other methods that result in simply automating old ways of doing 
business?; * How will the standard business processes be implemented by 
DHS components or the shared service providers to provide consistency 
across DHS?; * What process will be used to determine and validate the 
processes needed for DHS components that have unique needs?.

Building block: Strategy for implementing the shared service approach; 
Key questions: * What guidance will be provided to assist DHS and its 
component agencies in adopting a change management strategy that 
reduces the risks of consolidating systems and migrating to a shared 
service provider that uses the selected financial management systems 
models?; * What processes will be put in place to ensure that 
individual component agency financial management system investment 
decisions focus on the benefits of standard processes and shared 
service providers?; * What process will be used to facilitate the 
decision-making by component agencies to a given systems model?; * How 
will component agencies incorporate strategic workforce planning in the 
migration approach and consolidation of financial management systems?.

Building block: Disciplined Processes; Key questions: * How can 
existing industry standards and best practices be incorporated into DHS-
wide guidance related to financial management system implementation 
efforts, including migrating to shared service providers?; * What 
actions will be taken to reduce the risks and costs associated with 
data conversion and interface efforts?; * What oversight process will 
be used to ensure that modernization efforts effectively implement the 
prescribed policies and procedures?.

Source: GAO.

[End of table]

[End of section]

Appendix IV: Disciplined Processes:

Disciplined Processes Are Key to Successful Financial Management System 
Implementation Efforts:

Disciplined processes have been shown to reduce the risks associated 
with software development and acquisition efforts to acceptable levels 
and are fundamental to successful system implementations. A disciplined 
software implementation process can maximize the likelihood of 
achieving the intended results (performance) within established 
resources (costs) on schedule. Although a standard set of practices 
that will guarantee success does not exist, several organizations, such 
as the Software Engineering Institute (SEI) and the Institute of 
Electrical and Electronic Engineers (IEEE), and individual experts have 
identified and developed the types of policies, procedures, and 
practices that have been demonstrated to reduce development time and 
enhance effectiveness. The key to having a disciplined system 
development effort is to have disciplined processes in multiple areas, 
including requirements management, testing, data conversion and system 
interfaces, configuration management, risk management, project 
management, and quality assurance.

Requirements Management:

Requirements are the specifications that system developers and program 
managers use to design, develop, and acquire a system. They need to be 
carefully defined, consistent with one another, verifiable, and 
directly traceable to higher-level business or functional requirements. 
It is critical that they flow directly from the organization's concept 
of operations (how the organization's day-to-day operations are or will 
be carried out to meet mission needs).[Footnote 41]

According to the IEEE,[Footnote 42] a leader in defining the best 
practices for such efforts, good requirements have several 
characteristics, including the following:

* The requirements fully describe the software functionality to be 
delivered. Functionality is a defined objective or characteristic 
action of a system or component. For example, for grants management, a 
key functionality includes knowing (1) the funds obligated to a grantee 
for a specific purpose, (2) the cost incurred by the grantee, and (3) 
the funds provided in accordance with federal accounting standards.

* The requirements are stated in clear terms that allow for 
quantitative evaluation. Specifically, all readers of a requirement 
should arrive at a single, consistent interpretation of it.

* Traceability among various requirement documents is maintained. 
Requirements for projects can be expressed at various levels depending 
on user needs. They range from agencywide business requirements to 
increasingly detailed functional requirements that eventually permit 
the software project managers and other technicians to design and build 
the required functionality in the new system. Adequate traceability 
ensures that a requirement in one document is consistent with and 
linked to applicable requirements in another document.

* The requirements document contains all of the requirements identified 
by the customer, as well as those needed for the definition of the 
system.

Studies have shown that problems associated with requirements 
definition are key factors in software projects that do not meet their 
cost, schedule, and performance goals. Examples include the following:

* A 1988 study found that getting a requirement right in the first 
place costs 50 to 200 times less than waiting until after the system is 
implemented to get it right.[Footnote 43]

* A 1994 survey of more than 8,000 software projects found that the top 
three reasons that projects were delivered late, over budget, and with 
less functionality than desired all had to do with requirements 
management.[Footnote 44]

* A 1994 study found that, on average, there is about a 25-percent 
increase in requirements over a project's lifetime, which translates 
into at least a 25-percent increase in the schedule.[Footnote 45]

* A 1997 study noted that between 40 and 60 percent of all defects 
found in a software project could be traced back to errors made during 
the requirements development stage.[Footnote 46]

Testing:

Testing is the process of executing a program with the intent of 
finding errors.[Footnote 47] Because requirements provide the 
foundation for system testing, they must be complete, clear, and well 
documented to design and implement an effective testing program. Absent 
this, an organization is taking a significant risk that substantial 
defects will not be detected until after the system is implemented. As 
shown in figure 3, there is a direct relationship between requirements 
and testing.

Figure 3: Relationship between Requirements Development and Testing:

[See PDF for image]

Source: GAO. 

[End of figure]

Although the actual testing occurs late in the development cycle, test 
planning can help disciplined activities reduce requirements-related 
defects. For example, developing conceptual test cases based on the 
requirements derived from the concept of operations and functional 
requirements stages can identify errors, omissions, and ambiguities 
long before any code is written or a system is configured. Disciplined 
organizations also recognize that planning the testing activities in 
coordination with the requirements development process has major 
benefits.

Although well-defined requirements are critical for implementing a 
successful testing program, disciplined testing efforts for projects 
have several characteristics,[Footnote 48] which include the following:

* Testers who assume that the program has errors are likely to find a 
greater percentage of the defects present in the system. This is 
commonly called the testing mindset.

* Test plans and scripts that clearly define what the expected results 
should be when the test case is properly executed and the program does 
not have a defect that would be detected by the test case. This helps 
to ensure that defects are not mistakenly accepted.

* Processes that ensure test results are thoroughly inspected.

* Test cases that include exposing the system to invalid and unexpected 
conditions as well as the valid and expected conditions. This is 
commonly referred to as boundary condition testing.

* Testing processes that determine if a program has unwanted side 
effects. For example, a process should update the proper records 
correctly but should not delete other records.

* Systematic gathering, tracking, and analyzing statistics on the 
defects identified during testing.

Although these processes may appear obvious, they are often overlooked 
in testing activities.[Footnote 49]

Data Conversion and System Interfaces:

Data conversion is defined as the modification of existing data to 
enable them to operate with similar functional capability in a 
different environment.[Footnote 50] It is one of the many critical 
elements necessary to successfully implement a new system. Because of 
the difficulty and complexity associated with financial systems data 
conversion, highly skilled staff are needed. There are three primary 
phases in a data conversion:

(1) Pre-conversion activities prior to and leading up to the 
conversion, such as determining the scope and approach or method, 
developing the conversion plan, performing data cleanup and validation, 
ensuring data integrity, and conducting necessary analysis and testing.

(2) Cutover activities to convert the legacy data to the new system, 
such as testing system process and data edits, testing system 
interfaces (both incoming and outgoing), managing the critical path, 
supervising workload completion, and reconciliation.

(3) Post-installation activities such as verifying data integrity, 
conducting final disposition of the legacy system data, and monitoring 
the first reporting cycle.

There are also specific issues that apply uniquely to converting data 
as part of the replacement of a financial system, including:

* identifying specific open transactions and balances to be established,

* analyzing and reconciling transactions for validation purposes, and:

* establishing transactions and balances in the new system through an 
automated or manual process.

Further, consideration of various data conversion approaches and 
implications are important. Some considerations to be taken into 
account for the system conversion are the timing of the conversion 
(beginning-of-the-year, mid-year, or incremental) and other options 
such as direct or flash conversions, parallel operations, and pilot 
conversions. In addition, agencies should consider different data 
conversion options for different categories of data when determining 
the scope and timelines, such as:

* opting not to conduct a data conversion,

* processing new transactions and activity only,

* establishing transaction balances in the new system for reporting 
purposes,

* converting open transactions from the legacy system, and:

* recording new activity on closed prior year transactions.

Validation and adjustment of open transactions and data in the legacy 
system are essential prerequisites to the conversion process and have 
often been problematic. When data conversion is done right, the new 
system can flourish. However, converting data incorrectly has lengthy 
and long-term repercussions.

System interfaces operate on an ongoing basis, linking various systems 
and providing data that are critical to day-to-day operations, such as 
obligations, disbursements, purchase orders, requisitions, and other 
procurement activities. Testing the system interfaces in an end-to-end 
manner is necessary so agencies can have reasonable assurance that the 
system will be capable of providing the intended functionality. Systems 
that lack appropriate system interfaces often rely on manual reentry of 
data into multiple systems, convoluted systems, or both. According to 
the SEI, a widely recognized model for evaluating the interoperability 
of systems is the Levels of Information System Interoperability. This 
model focuses on the increasing levels of sophistication of system 
interoperability. Efforts at the highest level of this model-- 
enterprise-based interoperability--are systems that can provide 
multiple users access to complex data simultaneously, data and 
applications are fully shared and distributed, and data have a common 
interpretation regardless of format. This is in contrast to the 
traditional interface strategies that are more aligned with the lowest 
level of the SEI model. Data exchanged at this level rely on electronic 
links that result in a simple electronic exchange of data.

Configuration Management:

According to the SEI, configuration management is defined as a 
discipline applying technical and administrative direction and 
surveillance to (1) identify and document the functional and physical 
characteristics of a configuration item, (2) control changes to those 
characteristics, (3) record and report change processing and 
implementation status, and (4) verify compliance with specified 
requirements.[Footnote 51] The purpose of configuration management is 
to establish and maintain the integrity of work products. Configuration 
management involves the processes of:

* identifying the configuration of selected work products that compose 
the baselines at given points in time,

* controlling changes to configuration items,

* building or providing specifications to build work products from the 
configuration management system,

* maintaining the integrity of baselines, and:

* providing accurate status and current configuration data to 
developers, integrators, and end users.

The work products placed under configuration management include the 
products that are delivered to the customer, designated internal work 
products, acquired products, tools, and other items that are used in 
creating and describing these work products.

For commercial off-the-shelf (COTS) systems, configuration management 
focuses on ensuring that changes to the requirements or components of a 
system are strictly controlled to ensure the integrity and consistency 
of system requirements or components. Two of the key activities for 
configuration management include ensuring that (1) project plans 
explicitly provide for evaluation, acquisition, and implementation of 
new, often frequent, product releases[Footnote 52] and (2) modification 
or upgrades to deployed versions of system components are centrally 
controlled, and unilateral user release changes are precluded. 
Configuration management recognizes that when using COTS products, it 
is the vendor, not the acquisition or implementing organization, that 
controls the release of new versions and that new versions are 
frequently released.

Risk Management:

Risk and opportunity are inextricably related. Although developing 
software is a risky endeavor, risk management processes should be used 
to manage the project's risks to acceptable levels by taking the 
actions necessary to mitigate the adverse effects of significant risks 
before they threaten the project's success. If a project does not 
effectively manage its risks, then the risks will manage the project.

Risk management is a set of activities for identifying, analyzing, 
planning, tracking, and controlling risks. Risk management starts with 
identifying the risks before they can become problems. If this step is 
not performed well, then the entire risk management process may become 
a useless exercise since one cannot manage something that one does not 
know anything about. As with the other disciplined processes, risk 
management is designed to eliminate the effects of undesirable events 
at the earliest possible stage to avoid the costly consequences of 
rework.

After the risks are identified, they need to be analyzed so that they 
can be better understood and decisions can be made about what actions, 
if any, will be taken to address them. Basically, this step includes 
activities such as evaluating the impact on the project if the risk 
does occur, determining the probability of the event occurring, and 
prioritizing the risk against the other risks. Once the risks are 
analyzed, a risk management plan is developed that outlines the 
information known about the risks and the actions, if any, which will 
be taken to mitigate those risks. Risk monitoring is a continuous 
process because both the risks and actions planned to address 
identified risks need to be monitored to ensure that the risks are 
being properly controlled and that new risks are identified as early as 
possible. If the actions envisioned in the plan are not adequate, then 
additional controls are needed to correct the deficiencies identified.

Project Management:

Effective project management is the process for planning and managing 
all project-related activities, such as defining how components are 
interrelated, defining tasks, estimating and obtaining resources, and 
scheduling activities. Project management allows the performance, cost, 
and schedule of the overall program to be continually measured, 
compared with planned objectives, and controlled. Project management 
activities include planning, monitoring, and controlling the project.

Project planning is the process used to establish reasonable plans for 
carrying out and managing the software project. This includes (1) 
developing estimates of the resources needed for the work to be 
performed, (2) establishing the necessary commitments, and (3) defining 
the plan necessary to perform the work. Effective planning is needed to 
identify and resolve problems as soon as possible, when it is the 
cheapest to fix them. According to one author, the average project 
expends about 80 percent of the time on unplanned rework--fixing 
mistakes that were made earlier in the project. Recognizing that 
mistakes will be made in a project is an important part of planning. 
According to this author, successful system development activities are 
designed so that the project team makes a carefully planned series of 
small mistakes to avoid making large, unplanned mistakes. For example, 
spending the time to adequately analyze three design alternatives 
before selecting one results in time spent analyzing two alternatives 
that were not selected. However, discovering that a design is 
inadequate after development can result in code that must be rewritten, 
at a cost greater than analyzing the three alternatives in the first 
place. This same author notes that a good rule of thumb is that each 
hour a developer spends reviewing project requirements and architecture 
saves 3 to 10 hours later in the project.[Footnote 53]

Project monitoring and control help to understand the progress of the 
project and determine when corrective actions are needed based on the 
project's performance. Best business practices indicate that a key 
facet of project management and oversight is the ability to effectively 
monitor and evaluate a project's actual performance, cost, and schedule 
against what was planned.[Footnote 54] In order to perform this 
critical task, the accumulation of quantitative data or metrics is 
required and can be used to evaluate a project's performance. An 
effective project management and oversight process uses quantitative 
data or metrics to understand matters such as (1) whether the project 
plan needs to be adjusted and (2) oversight actions that may be needed 
to ensure that the project meets its stated goals and complies with 
agency guidance. For example, an earned value management system is one 
metric that can be employed to better manage and oversee a system 
project.[Footnote 55] An earned value management system attempts to 
compare the value of work accomplished during a given period with the 
work scheduled for that period. With ineffective project oversight, 
management can only respond to problems as they arise.

Agency management can also perform oversight functions, such as project 
reviews and participation in key meetings, to help ensure that the 
project will meet the agency needs. Management can use independent 
verification and validation reviews to provide it with assessments of 
the project's software deliverables and processes. Although independent 
of the developer, verification and validation is an integral part of 
the overall development program and helps management mitigate risks. 
This core element involves having an independent third party--such as 
an internal audit function or a contractor that is not involved with 
any of the system implementation efforts--verify and validate that the 
systems were implemented in accordance with the established business 
processes and standards. Doing so provides agencies with needed 
assurance about the quality of the system, which is discussed in more 
detail in the following section.

Quality Assurance:

Quality assurance is defined as a set of procedures designed to ensure 
that quality standards and processes are adhered to and that the final 
product meets or exceeds the required technical and performance 
requirements. Quality assurance is a widely used approach in the 
software industry to improve upon product delivery and the meeting of 
customer requirements and expectations. The SEI indicates that quality 
assurance should begin in the early phases of a project to establish 
plans, processes, standards, and procedures that will add value to the 
project and satisfy the requirements of the project and the 
organizational policies. Quality assurance provides independent 
assessments, typically performed by an independent verification and 
validation or internal audit team, of whether management process 
requirements are being followed and whether product standards and 
requirements are being satisfied. Some of the widely used quality 
assurance activities include defect tracking, technical reviews, and 
system testing.

* Defect tracking--keeping a record of each defect found, its source, 
when it was detected, when it was resolved, how it was resolved (fixed 
or not), and so on.

* Technical reviews--reviewing user interface prototypes, requirements 
specifications, architecture, designs, and all other technical work 
products.

* System testing--executing software for the purpose of finding 
defects, typically performed by an independent test organization or 
quality assurance group.

According to one author, quality assurance activities might seem to 
result in a lot of overhead, but in actuality, exactly the opposite is 
true.[Footnote 56] If defects can be prevented or removed early, a 
significant schedule benefit can be realized. For example, studies have 
shown that reworking defective requirements, design, and code typically 
consumes 40 to 50 percent of the total costs of software development 
projects.[Footnote 57] An effective quality assurance approach is to 
detect as many defects as possible as early as possible to keep the 
costs of corrections down. However, enormous amounts of time can be 
saved by detecting defects earlier than during system testing.

[End of section]

Appendix V: Comments from the Department of Homeland Security:

U.S. Department of Homeland Security: Washington, DC 20528:

June 5, 2007: 

Homeland Security: 

Mr. McCoy Williams: 
Director: 
Financial Management and Assurance: 
U.S. Government Accountability: 
Office 441 G Street, NW:
Washington, DC 20548: 

Dear Mr. Williams:

Thank you for the opportunity to review and comment on the Government 
Accountability Office's (GAO's) draft report GAO-07-536 entitled 
Homeland Security: Department-wide Integrated Financial Management 
Systems Remain a Challenge.

The mission for financial managers in the Department of Homeland 
Security (DHS) is to produce timely, accurate and useful financial 
information, and to ensure the integrity of internal controls. 
Improving financial systems is one of the steps the Department is 
taking to achieve this mission, but it is only part of the overall 
strategy of the Office of the Chief Financial Officer (OCFO). Success 
in financial management rests upon a comprehensive framework of people, 
policy, process, systems, and assurance. The Department recognizes that 
attention is needed in all of these areas, and balance must exist 
between them.

The Department's Resource Management Transformation Office (RMTO) 
concurs with the recommendations of the GAO and in many cases, 
initiatives pursuant to the recommendations are underway or in the 
final stages of development. Specifically, RMTO is currently in the 
process of rolling out its updated strategy for financial management 
Transformation and Systems Consolidation (TASC).

TASC involves moving from multiple to fewer financial systems 
throughout the Department. Rather than require the acquisition, 
configuration, and implementation of a new system within DHS, TASC 
leverages current Department investments by migrating Components to two 
proven financial management systems - Oracle Federal Financials and SAP 
- already in use within U.S. Customs and Border Protection (CBP), 
Transportation Security Administration (TSA), Federal Air Marshal 
Service (FAMS) and Domestic Nuclear Detection Office (DNDO). This 
approach minimizes the risks typically associated with system 
migrations as RMTO has hands-on experience with the proposed systems as 
well as a proven track record of successful migrations to these systems.

The adoption of the two financial management systems provides DHS with 
more accurate, timely, and complete reporting through a centralized 
business intelligence function and state of the art data integration 
and reporting tool. These standards-based systems meet financial 
business requirements, are scalable, secure, and proven within the DHS 
operating environment. The migration from legacy financial systems to 
Oracle Federal Financials and SAP - widely used, Financial Systems 
Integration Office (FSIO) certified applications - provide significant 
business efficiencies while striking a balance between development, 
investment, transition risks and achievable cost savings. The two 
systems will enhance the Department's ability to support unqualified 
audits and robust reporting requirements.

Consolidating to fewer systems will enable DHS to leverage its 
investment across Components to provide a more robust financial 
management system and become more accountable and better stewards of 
taxpayer dollars. Overall, TASC meets the following DHS requirements:

* Provides better mission support through efficient finance, 
procurement and asset management operations and business processes;

* Reduces reporting errors via the removal of manual processes and 
controls yielding more streamlined financial reporting in a more secure 
environment;

* Provides real-time interoperability across the financial management 
enterprise, improving operations and leveraging investments;

* Provides the foundation for effective internal controls and 
segregation of duties supported by a compliant software system, moving 
DHS closer to a sustainable unqualified audit opinion;

* Reduces maintenance costs, single vendor reliance and the vast 
commitment of internal resources now dedicated to the maintenance of 
outdated, highly customized software;

* Provides an approved Chart of Accounts compliant with the United 
States Standard General Ledger (USSGL) and OMB Circular A-127; and:

* Supports the President's Management Agenda (PMA) framework and use of 
an OMB-compliant accounting line which strengthens Department-wide 
financial accountability.

DHS concurs with the GAO's recommendations and has taken or plans to 
take the following actions with respect to the draft report's six 
recommendations:

Recommendation 1: Clearly define and document a Department-wide 
financial management strategy and plan to move forward with its 
financial management system integration efforts.

Response: Concur. The Department is moving forward with financial 
system modernization efforts through TASC. TASC capitalizes on existing 
DHS investments with the use of Oracle Federal Financials and SAP. Both 
systems are certified by the Federal financial management systems as 
FSIO compliant. Oracle Federal Financials and SAP are the only two 
financial management systems contained within the DHS Enterprise target 
architecture and are consistent with the Federal Enterprise 
Architecture. By FYI 1, over 97 percent of the Department will be 
supported by Oracle Federal Financials or SAP.

The two proposed financial management systems will support the 
Department's effort to achieve unqualified audits, support robust 
reporting requirements, and enable the Secretary's Priority 12.2 to 
unify IT infrastructure. Both support the President's Management Agenda 
framework, use an OMB-compliant accounting line, and strengthen 
Department-wide financial accountability.

TASC is consistent with GAO recommendations for strengthening DHS 
financial management and will enable the Department to provide reliable 
and useful financial management information to its leadership, Congress 
and American taxpayers, positioning the Department to take full 
advantage of information available to make decisions to support the 
organization's mission.

Recommendation 2: Develop a comprehensive concept of operations 
document.

Response: Concur. RMTO acknowledges the importance of a well-written 
Concept of Operations (ConOps). RMTO is currently drafting an Institute 
of Electrical and Electronics Engineers (IEEE) standard 1362-1998 
compliant update to the ConOps developed from the previous migrations 
of TSA, FAMS, and DNDO. Moreover, development and maintenance of the 
ConOps for the financial management systems is a key deliverable to be 
performed by a system integrator.

This ConOps will address Component-specific legacy systems and how they 
will interact or be replaced by the SAP and Oracle Federal Financials 
systems. The gap analysis methodology will facilitate the understanding 
of the legacy system processes.

The ConOps is a living document that will be updated as the project 
progresses. It will be kept in a document tracking system to record the 
history of those changes.

Recommendation 3: Reengineer business processes and standardize them 
across the Department, including applicable internal controls.

Response: Concur. The Department has efforts underway to reengineer and 
standardize key business processes that focus not only on systems, but 
also broader objectives including strengthening internal controls over 
financial reporting and creating a Department-wide financial policy 
manual. TASC centers on migrating Components onto two existing DHS 
financial management systems, which facilitates business process 
standardization across the Department. As we configure the system for 
each of the Components, we will put particular focus on the 
standardization of key business process areas.

As opposed to relying on a waterfall methodology used to collect the 
8,000 business process requirements from eMerge2, TASC follows a more 
iterative methodology with flexibility to address evolving 
requirements. Subject matter experts, analysts, architects, developers 
and project managers will be cohesively integrated throughout the 
Component migration process to ensure that all business processes will 
be captured and vetted against established standards. The system 
integrator will work directly with RMTO to develop and implement change 
and configuration management processes to ensure that a single set of 
standard processes could endure as the enterprise standard.

Internal controls are also the focal point of TASC as the proposed 
systems follow OMB Circular A-123 objectives in providing effectiveness 
and efficiency of operations, reliability of financial reporting 
through business intelligence tools that provide transaction-level 
detail, and compliance with applicable laws and regulations such as the 
Federal Managers' Financial Integrity Act (FMFIA) with system- 
controlled segregation of duties to safeguard against unauthorized use 
or misappropriation. One example is the ability to perform an automated 
funds check. The system will check the general ledger account to ensure 
that funds are available prior to a purchase request being released in 
the system.

Point of clarification: TASC should not be confused with the DHS 
Internal Controls Over Financial Reporting (ICOFR) Playbook. The ICOFR 
Playbook outlines the corrective actions the Department is taking to 
address a broad range of material weaknesses and improve internal 
controls. TASC is the systems backbone which will provide the technical 
infrastructure to support the corrective action plans and internal 
controls outlined in the ICOFR Playbook. The internal controls policies 
defined in the ICOFR Playbook are reinforced by the systems. The GAO 
Report should clarify that the ICOFR Playbook is at the policy and 
process level, distinct from financial systems modernization.

Recommendation 4: Develop a detailed plan for migrating various DHS 
Components to an internal shared services approach if this is sustained.

Response: Concur with technical clarification. RMTO reviewed the 
benefits of using external shared service providers such as Bureau of 
Public Debt and Department of the Interior. The conclusion from the 
review was that DHS should leverage existing internal shared service 
centers. OMB concurred and has since approved RMTO's program management 
plan, concept of operations, risk management plan, system development 
life cycle, business case, and migration strategy.

With regard to a migration plan, RMTO will adhere to the same 
successful methodology followed during the migrations of TSA, FAMS, and 
DNDO. The SAP stand-up for CBP has proven successful as well. The goal 
is to repeat, refine and build upon each successful migration. 
Utilizing these systems allows DHS to migrate Components in a phased 
approach.

The consolidation plan will begin with migration of small Components 
such as the Office of Health Affairs (OHA) and Science and Technology 
(S&T). The benefits of starting small include risk mitigation, building 
upon successes, establishing lessons learned, and increasing confidence 
for larger-scale migrations. The plan will continue with the migration 
of larger Components such as FEMA.

DHS will manage eight Component migrations onto the SAP and Oracle 
Federal Financials systems. By FY09, 50 percent of DHS Components are 
anticipated to be on these two financial management systems. By FYI l, 
97 percent of the Department will be on these systems. FLETC will 
remain on Momentum and USSS will remain on EFMS. Strategic planning to 
migrate FLETC and USSS onto the systems is forecasted beyond FYI 1.

Point of clarification: TSA's audit shortcomings were centered on 
policies and procedures, not system-oriented problems. The Oracle 
Federal Financials system supports prior year recovery processing at a 
detailed transaction level, but TSA's process was to perform summary 
journal voucher entries instead contributing to their budgetary 
accounting finding. The identified property, plant and equipment 
problems were mostly due to lack of supporting documentation and policy 
around property management. TSA was also cited for lack of policies and 
procedures for intergovernmental reporting processes. Again, these 
issues were not due to system deficiencies, rather the lack of 
enforcement of standard auditable processes. Standardization of federal 
business processes are a key benefit of TASC.

Recommendation 5: Utilize and implement specific disciplined processes 
to minimize project risk.

Response: Concur. The success of TASC is predicated on having a 
disciplined set of processes from requirements to acceptance. RMTO 
developed key program documents early in the program that detail the 
strategies, plans, and processes for all of the areas cited in the GAO 
report including Program Management, Requirements Management, Testing, 
Data Management, Configuration Management, Risk Management, and Quality 
Management. In addition, RMTO developed strategies, plans, and 
processes for Architecture Management, Change Management and 
Communications, Independent Verification and Validation, and Contract 
Deliverables.

To ensure our new systems integrator also understands the importance of 
disciplined processes, RMTO is requiring that they possess at a minimum 
a Capability Maturity Model Integration (CMMI) level 3 certification to 
ensure that mature and repeatable processes are used.

Supported by seasoned leadership with extensive experience in systems 
migrations and data conversion, RMTO will leverage lessons learned from 
the successful migrations of TSA, former customers and Components of 
ICE (FAMS and DNDO), and CBP to the two financial management systems. 
Over the course of the effort, RMTO will continue to build upon the 
successes and maturity gained through each subsequent migration and 
will refine its repeatable methodology before moving other Components 
onto the systems. While leadership has strong experience in systems, 
systems migrations and program management, RMTO is adding staff with an 
even greater degree of program management and systems capabilities to 
manage the risk.

Recommendation 6: Carefully consider human capital practices as DHS 
moves forward with its financial management transformation efforts so 
that the right people with the right skills are in place at the right 
time.

Response: Concur. There are several initiatives underway within the 
OCFO to facilitate acquiring the right people with the right skill 
sets. The Department carried out a Human Capital survey assessment and 
the OCFO provided an intensive week-long new hire orientation program 
for all of DHS headquarters and Component OCFO new hires. The OCFO 
mentorship program incorporated shadowing assignments as well as an 
opportunity to participate in University programs. RMTO recognizes that 
staff with the appropriate skills is critical to implementing financial 
management systems transformation. While GAO is correct in its 
assertion that outside contractors are performing many duties, they 
bring specialized systems expertise and will be properly managed by 
federal government team project managers and RMTO leadership. In 
addition, RMTO is adding federal staff with an even greater degree of 
program management and systems capabilities to ensure the right skill 
sets are available to manage this critical transformation.

It should also be mentioned that TASC supports current OCFO human 
capital strategic initiatives unifying financial management processes 
across the Department, helping build a single, transparent and dynamic 
Department culture. As TASC standardizes business processes, it will 
better enable DHS employees to develop their careers across the 
Department. For example, Financial Analysts, Procurement Specialists 
and Accountants will be trained on one of two highly transferable 
systems. With continued training, DHS employees will further enhance 
their knowledge over the evolution of the system.

Changing financial management systems is an inherently complex and 
challenging endeavor. DHS has adopted a strategy for improving 
financial systems that minimizes risks, addresses audit challenges, and 
capitalizes on existing DHS system investments while leveraging best of 
breed Commercial Off the Shelf (COTS) software. DHS has successfully 
migrated three components, TSA, FAMS and DNDO to the Oracle Baseline. 
The TASC initiative continues the process of consolidating components 
on to these common baselines.

Thank you again for the opportunity to comment on this draft report and 
we look forward to working with you on future homeland security issues.

Sincerely,

Signed by: 

Steven J. Pecinovsky: 
Director: 
Departmental GAO/OIG Liaison Office: 

[End of section]

Appendix VI: GAO Contacts and Staff Acknowledgments:

GAO Contacts: 

McCoy Williams (202) 512-9095 or williamsm1@gao.gov: 
Keith A. Rhodes (202) 512-6412 or rhodesk@gao.gov:

Acknowledgments:

In addition to the contacts named above, Kay Daly, Assistant Director; 
Chris Martin, Senior-Level Technologist; Chanetta Reed; Francine 
DelVecchio; and Felicia Brooks made key contributions to this report.

[End of section]

Related GAO Products:

Federal Financial Management: Critical Accountability and Fiscal 
Stewardship Challenges Facing Our Nation. GAO-07-542T. Washington, 
D.C.: March 1, 2007.

Homeland Security: Applying Risk Management Principles to Guide Federal 
Investments. GAO-07-386T. Washington, D.C.: February 7, 2007.

Homeland Security: Management and Programmatic Challenges Facing the 
Department of Homeland Security. GAO-07-398T. Washington, D.C.: 
February 6, 2007.

High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007.

Financial Management: Improvements Underway But Serious Financial 
Systems Problems Persist. GAO-06-970. Washington, D.C.: September 26, 
2006.

Information Technology: Improvements Needed to More Accurately Identify 
and Better Oversee Risky Projects Totaling Billions of Dollars. GAO-06- 
1099T. Washington, D.C.: September 7, 2006.

Enterprise Architecture: Leadership Remains Key to Establishing and 
Leveraging Architectures for Organizational Transformation. GAO-06- 
831. Washington, D.C.: August 14, 2006.

Homeland Security: Progress Continues, but Challenges Remain on 
Department's Management of Information Technology. GAO-06-598T. 
Washington, D.C.: March 29, 2006.

Financial Management Systems: DHS Has an Opportunity to Incorporate 
Best Practices in Modernization Efforts. GAO-06-553T. Washington, D.C.: 
March 29, 2006.

Financial Management Systems: Additional Efforts Needed to Address Key 
Causes of Modernization Failures. GAO-06-184. Washington, D.C.: March 
15, 2006.

CFO Act of 1990: Driving the Transformation of Federal Financial 
Management. GAO-06-242T. Washington, D.C.: November 17, 2005.

Information Technology: OMB Can Make More Effective Use of Its 
Investment Reviews. GAO-05-276. Washington, D.C.: April 15, 2005.

Financial Management: Effective Internal Control Is Key to 
Accountability. GAO-05-321T. Washington, D.C.: February 16, 2005.

Financial Management: Improved Financial Systems Are Key to FFMIA 
Compliance. GAO-05-20. Washington, D.C.: October 1, 2004.

Financial Management Systems: Lack of Disciplined Processes Puts 
Implementation of HHS' Financial Systems at Risk. GAO-04-1008. 
Washington, D.C.: September 23, 2004.

Financial Management: Department of Homeland Security Faces Significant 
Financial Management Challenges. GAO-04-774. Washington, D.C.: July 19, 
2004.

Information Technology: Homeland Security Should Better Balance Need 
for System Integration Strategy with Spending for New and Enhanced 
Systems. GAO-04-509. Washington, D.C.: May 21, 2004.

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

Standards for Internal Control in the Federal Government. GAO/AIMD-00- 
21.3.1. Washington, D.C.: November 1999.

FOOTNOTES

[1] Pub. L. No. 107-296, 116 Stat. 2135 (Nov. 25, 2002). 

[2] GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.: 
January 2007).

[3] Under standards issued by the American Institute of Certified 
Public Accountants (AICPA), "reportable conditions" are matters coming 
to the auditors' attention relating to significant deficiencies in the 
design or operation of internal controls that, in the auditors' 
judgment, could adversely affect the department's ability to record, 
process, summarize, and report financial data consistent with the 
assertions of management in the financial statements. The AICPA 
recently revised its guidance for audits of financial statements 
beginning on or after December 15, 2006; the term "reportable 
condition" has been replaced by "significant deficiency." 

[4] A material weakness was previously defined as a reportable 
condition in which the design or operation of one or more of the 
internal control components does not reduce to a relatively low level 
the risk that misstatements caused by error or fraud in amounts that 
would be material in relation to the financial statements being audited 
may occur and not be detected within a timely period by employees in 
the normal course of performing their assigned functions. The new 
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, Financial Management Systems: DHS Has an Opportunity to 
Incorporate Best Practices in Modernization Efforts, GAO-06-553T 
(Washington, D.C.: Mar. 29, 2006).

[6] The U.S. Coast Guard operates TSA's financial management system.

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

[8] IEEE Guide for Information Technology - System Definition - Concept 
of Operations Document, Std.1362-1998. The 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.

[9] IEEE Recommended Practice for Software Requirements Specifications, 
Std. 830-1998. This recommended practice is aimed at specifying 
requirements of software to be developed but also can be applied to 
assist in the selection of in-house and commercial software products.

[10] GAO, Financial Management: Department of Homeland Security Faces 
Significant Financial Management Challenges, GAO-04-774 (Washington, 
D.C.: July 19, 2004).

[11] GAO-06-553T.

[12] The Bureau of Customs and Border Protection is now the U.S. 
Customs and Border Protection component of DHS.

[13] Bureau of Immigration and Customs Enforcement is now the U.S. 
Immigration and Customs Enforcement component of DHS.

[14] Federal Financial Management Improvement Act of 1996, Pub. L. No. 
104-208, div. A, § 101(f), title VIII, 110 Stat. 3009, 3009-389 (Sept. 
30, 1996), requires agencies to implement financial management systems 
that substantially comply with (1) federal financial management systems 
requirements, (2) federal accounting standards, and (3) the U.S. 
Standard General Ledger at the transaction level.

[15] GAO-04-774.

[16] The Department of Homeland Security Financial Accountability Act 
of 2004, Pub. L. No. 108-330 § 3, 118 Stat. 1275, 1276 (Oct. 16, 2004), 
added DHS to the list of CFO Act agencies.

[17] Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15, 1990).

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

[19] Pub. L. No. 97-255, 96 Stat. 814 (Sept. 8, 1982) (codified at 31 
U.S.C. § 3512 (c), (d)).

[20] IT hosting involves providing secure facility space, networks, and 
hardware to host software applications and providing the necessary 
personnel to operate this secure environment.

[21] Business process services involve services ranging from 
transaction processing to financial management services. The range of 
services may include general ledger reconciliation, budget formulation, 
and audit support.

[22] Application management services include services for running and 
managing access to business software applications and the feeder 
systems that provide data to the financial management software.

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

[24] CRP is a configured solution ready for the execution of scenarios. 
The solution is measured against its capability to satisfy the eMerge2 
requirements. The CRP was not executed.

[25] Department of Homeland Security - March 29, 2006, testimony before 
the House Government Reform Subcommittee on Government Management, 
Finance, and Accountability and the House Homeland Security 
Subcommittee on Management, Integration, and Oversight.

[26] IEEE Std. 1362-1998. 

[27] GAO-06-553T.

[28] GAO-06-184.

[29] The DHS five business domains are (1) accounting and reporting, 
(2) acquisition and grants, (3) asset management, (4) budget, and (5) 
cost and revenue performance management. 

[30] BPMN defines a Business Process Diagram, which is based on a 
flowcharting technique tailored for creating graphical models of 
business process operations. A business process model, then, is a 
network of graphical objects, which are activities (i.e., work) and the 
flow controls that define their order of performance. 

[31] Requirements for projects can be expressed at various levels 
depending on user needs. They range from agencywide business 
requirements to increasingly detailed functional requirements that 
eventually permit the software project managers and other technicians 
to design and build the required functionality in the new system. 
Adequate traceability ensures that a requirement in one document is 
consistent with and linked to applicable requirements in another 
document.

[32] OMB's Office of Federal Financial Management, Core Financial 
System Requirements, OFFM-NO-0106, January 2006.

[33] GAO-06-553T.

[34] IEEE Std. 1362-1998. 

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

[36] See 40 U.S.C. §11303(b)(2)(C).

[37] GAO/AIMD-00-134.

[38] GAO-06-184.

[39] See OMB, Information Technology Project Manager Qualification 
Guidance, M-04-19 (Washington, D.C.: July 21, 2004), and OMB Circular 
No. A-11, § 300.

[40] GAO, Homeland Security: Management and Programmatic Challenges 
Facing the Department of Homeland Security, GAO-07-398T (Washington, 
D.C.: Feb. 6, 2007).

[41] According to IEEE Std. 1362-1998, a concept of operations document 
is normally one of the first documents produced during a disciplined 
development effort since it describes system characteristics for a 
proposed system from the user's viewpoint. This is important since a 
good concept of operations document can be used to communicate overall 
quantitative and qualitative system characteristics to the user, 
developer, and other organizational elements. This allows the reader to 
understand the user organizations, missions, and organizational 
objectives from an integrated systems point of view.

[42] IEEE Std. 830-1998.

[43] Barry W. Boehm and Philip N. Papaccio, "Understanding and 
Controlling Software Costs," IEEE Transactions on Software Engineering, 
vol. 14, no. 10 (1988).

[44] The Standish Group, Charting the Seas of Information Technology 
(Dennis, Mass.: The Standish Group, 1994).

[45] Caper Jones, Assessment and Control of Software Risks (Englewood 
Cliffs, N.J.: Yourdon Press, 1994).

[46] Dean Leffingwell, "Calculating the Return on Investment from More 
Effective Requirements Management," American Programmer (1997).

[47] Glenford J. Myers, The Art of Software Testing (New York: John 
Wiley & Sons, Inc., 1979).

[48] Testing covers a variety of activities. The discussion of the 
testing processes in this appendix has been tailored to selected 
aspects of system implementation efforts and is not intended to provide 
a comprehensive discussion of all the processes that are required or 
the techniques that can be used to accomplish a disciplined testing 
process.

[49] Glendford J. Myers, The Art of Software Testing.

[50] Joint Financial Management Improvement Program, White Paper: 
Financial Systems Data Conversion-Considerations (Washington, D.C.: 
Dec. 20, 2002).

[51] IEEE Std. 610-1990.

[52] Donald J. Reifer, Victor R. Basili, Barry W. Boehm, and Betsy 
Clark, "COTS-Based Systems--Twelve Lessons Learned about Maintenance." 
(Presentation, 3rd International Conference on COTS-Based Software 
Systems, Redondo Beach, Calif., Feb. 4, 2004.)

[53] Steve McConnell, Software Project Survival Guide (Redmond, Wash.: 
Microsoft Press, 1998).

[54] GAO, Information Technology: DOD's Acquisition Policies and 
Guidance Need to Incorporate Additional Best Practices and Controls, 
GAO-04-722 (Washington, D.C.: July 30, 2004).

[55] According to Office of Management and Budget Circular No. A-11 § 
300.4, earned value management is a project (investment) management 
tool that effectively integrates the investment scope of work with 
schedule and cost elements for optimum investment planning and control. 
Agencies must demonstrate use of an earned value management system that 
meets American National Standards Institute/ Electronic Industries 
Alliance Standard 748, for both government and contractor costs, for 
those parts of the total investment that require development efforts 
(e.g., prototypes and testing in the planning phase and development 
efforts in the acquisition phase) and show how close the investment is 
to meeting the approved cost, schedule, and performance goals. In 
addition, agencies must provide an explanation for any cost or schedule 
variances that are more than plus or minus 10 percent.

[56] Steve McConnell, Software Project Survival Guide.

[57] Steve McConnell, Rapid Development: Taming Wild Software Schedules 
(Redmond, Wash.: Microsoft Press, 1996).

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