FROM THE OFFICE OF PUBLIC AFFAIRS

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

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

Secretary of the Treasury Rubin is briefed periodically on the status of our Year 2000 program, and the Assistant Secretary for Management and CFO and myself meet weekly with bureau heads to review their Year 2000 progress. Working groups meet regularly for the Information Technology (IT), Non-IT, and Telecommunications components of our program. The Department requires each bureau and office to submit detailed monthly status reports. Additionally, the Secretary of the Treasury has mandated that each bureau and office head select an executive official to be in charge of their Year 2000 program. This individual, typically at the CIO or CFO level or higher, is responsible for ensuring that the Year 2000 program at their bureau or office is completed in a timely manner.

I would now like to describe the overall status of Treasury's Year 2000 program, some successes we have experienced, and some remaining challenges we must address.

Treasury has now identified 321 mission critical IT systems and 272 mission critical Non-IT systems. At present, we have completed the assessments for 97.1% of Treasury's mission critical IT systems. We have renovated 125, or 51.4% of the mission critical IT systems that need to be converted. We can now report 119 out of 321 (37.1%) of the total mission critical IT systems are now Year 2000 compliant. Treasury's largest bureau, the Internal Revenue Service (IRS), has renovated 75 out of 126 (59.5%) mission critical IT systems, and validated 60 out of 126, or (47.6%).

I believe that, as a Department, we have made significantly more progress than has been indicated by the above figures. We are conservatively not reporting progress until entire systems have been renovated and tested. For example, the Customs Service, like the IRS, manages its renovation efforts by components. Customs has three mission critical systems, all of which require repair, which include 178 components. Although we report none of these three Customs mission critical IT systems as completed renovation, testing, or implementation, the fact is that 63.8% of the components within these systems have been renovated, 27.7% have been tested, and 19.24% have been implemented. Over 73% of the total Customs inventory of lines of code have been converted.

Treasury operates one of the largest enterprise telecommunications networks in the Government. In order to address Year 2000 challenges, a Year 2000 Telecommunications "Command Center" has been established to serve as a central location for telecommunications activities, including the Telecommunications Executive Body and Working Group meetings. Charts and graphs depicting current hardware and software status of each corporate telecommunications program, the independent verification and validation (IV&V) testing process, and overall progress tracking are displayed prominently for use by program managers and executives. Contractors supporting the telecommunications programs are co-located with the dedicated Year 2000 telecommunications program staff in the room to ensure ongoing, timely communications. To further promote communication among the CIO, Executive Body, program areas, working groups and bureaus, the Department has established a telecommunications site on the Treasury Year 2000 Intranet web site. Current information is published on the web site, including schedules, inventories and assessments, correspondence, and other relevant information.

Treasury has established a test laboratory for testing components of the system before implementing the changes in the operational environment. In addition, the Department has engaged a telecommunications company to perform independent verification and validation (IV&V) of the telecommunications infrastructure with respect to Year 2000 compliance.

Thus, for our mission critical systems, Treasury is on schedule to meet the implementation milestone date of December 1998 with the exception of the IRS phase 5 system applications and Financial Management Services Government On Line Accounting Link System (GOALS). The IRS systems will be completed by January 1999 in accordance with the IRS Year 2000 program plan, which calls for implementing renovated systems in 6 month phases, each January and July, through January 1999. This implementation strategy was created to accommodate tax processing season considerations. The Department is working closely with Financial Management Service to determine actions that can be taken to accelerate the GOALS schedule, as described in the Financial Management Services' testimony.

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

The Non-IT effort is supported by a central Non-IT database, on the Treasury Intranet Year 2000 site, which provides a tracking tool to determine the compliance status of vendor products.

As of March 6, 1998, Treasury bureaus and offices had identified 6,898 external data exchanges, of which 3,169 were incoming and 3,729 were outgoing. The Department has assessed 6,878 out of 6,898 (99.7%) of these external data exchanges, and found that 87.3% are Year 2000 compliant or have been granted a waiver. Of the 2,551 interfaces with the US private sector, Treasury bureaus and offices thus far have contacted 2,446 and reached agreements with 2,391. The bureaus and offices are working to meet the established milestone date of March 31, 1998, for reaching agreement with all state governments with which Treasury exchanges data.

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

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

In spite of our best efforts to date and our aggressive plans for the future, the Year 2000 problem is far from solved. Indeed, several significant key issues pose special challenges for us, and possibly for other Government agencies as well.

One issue that concerns us is vendor schedules for Year 2000 compliant versions of their commercial off-the-shelf hardware and software products. Some vendors have yet to release Year 2000 compliant upgrades of their products. While we are continuing to work on our renovation efforts, our testing cannot be completed until we have obtained and integrated the Year 2000 compliant versions of these products. This problem may become especially troublesome in the Non-IT area, where vendors have been, as a group, slower to recognize and respond to the challenges posed by the Year 2000 problem.

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

In addition to funding challenges, we must also contend with the increasing rate of attrition within our information systems workforce. Skilled programmers -- especially those with skills in legacy system platforms -- are in strong demand within the private sector, which can pay significantly higher salaries than the Government. The loss of these critical resources represents a risk to the Year 2000 program.

Finally, while we are fortunate that many of our external interfaces are Year 2000 compliant, scheduling and testing all these interfaces are a challenge. Ultimately, we cannot test external interfaces unless our data exchange partners are ready to do so.

I believe that Treasury has an aggressive overall Year 2000 program in place, and we are on target to complete the conversion, testing, validation, and implementation of all mission critical systems in time to avoid disruption to any critical systems. Nothing less than 100% compliance will be acceptable to the American public, or to me personally.

I recognize that Chairman Horn's ratings suggest that Treasury has significantly greater problems with the Year 2000 problem than my testimony suggests. I do not underestimate the challenge of achieving significant compliance. However, we have purposefully taken a conservative approach at Treasury with respect to measuring our progress on the Year 2000 problem. We are requiring an end-to-end testing of all our systems before we will consider them to be 100% compliant.

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