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Special DoD News Briefing on Financial Management Study

Presenter: Mr. Stephen Friedman
July 11, 2001 2:30 PM EDT

Tuesday, July 10, 2001 - 2:30 p.m. EDT

(Special briefing by Stephen Friedman, chairman of the board of trustees, Columbia University and retired chairman of Goldman Sachs & Co., on "Transforming Department of Defense Financial Management: A Strategy for Change." Also participating was Nelson Toye, deputy chief financial officer of the Department of Defense, and Bill Phillips, partner, PricewaterhouseCoopers.)

Quigley: Ladies and gentleman, I'd like to shift to the second part of our presentation today. This is, as I mentioned, Secretary Rumsfeld had asked for a look at the financial management practices of the department and some suggestions on how we might improve that, and Mr. Stephen Friedman was the individual that carried out that effort for Secretary Rumsfeld.

And, sir, over to you.

Friedman: Thank you. Good afternoon. As the admiral said, the secretary asked me to lead a study group on developing proposals for a strategy for improving financial management in the Pentagon. This was done under the auspices of the Institute for Defense Analysis, and the group we put together included a number of people that the secretary and/or I had worked with previously. I think one of my colleagues is going to hand out a piece of paper with the names of them and their backgrounds, but briefly, Jim Denny, who is the chairman of a biosciences firm, had formerly been the vice chairman and chief financial officer of Sears, Roebuck; Rick Friedland, who had been the retired chief financial officer and CEO of General Instrument; Don Haider is a professor of management at Northwestern's Kellogg School; Bob Hermann, who spent many years in various important posts here in the Pentagon and had been the senior vice president, science and technology, at United Technologies; and Bill Kelvie, who is now in the technology business but retired recently as executive VP and chief information officer of Fannie Mae.

The study was not an audit or in any way an exercise in finger pointing but, as I said, was intended to be very practical about suggestions for revamping financial management. We made this an inclusive process and interviewed and talked widely. We got a lot of help from folks within this building, particularly in the comptroller's office. We used Pricewaterhouse as consultants.

We started out with an observation that current DoD financial accounting and operational systems don't provide adequately relevant, reliable and timely financial information or adequately support management decision-making. DoD financial management has been criticized intensely for a long time, and numerous studies and congressional criticisms over the years have discussed various weaknesses of the system, and there have been repetitive audit reports verifying the problems.

For fiscal year 2000, DoD failed to meet the requirements of the Chief Financial Officer's Act which mandates annual auditable financial statements DoD-wide, even though some units do have clean opinions, and full compliance with the act remains over the horizon for the present.

The systemic issues that we identified are not strictly financial. The solutions will require a very concerted effort from communities throughout DoD. The good news is that this is doable, and those of us on the task force study group had a very clear sense that the senior leadership of DoD has made this a priority and is definitely intent on making dramatic improvements, and promptly.

Let me say this: the problem is not essentially one of people. There are lots of very conscientious hard-working people here, and some good things are happening. The problem is more the tools that they've been required to work with: accounting systems which were originally set up for and must still accomplish budgetary accounting goals and were not set up originally for generally accepted accounting principles or for management information systems.

Secondly, we're not focusing on or aware of waste of taxpayers' money in some traditional usage in the sense of large amounts of money going to people who don't have a legal right to it, we're talking more about issues of taking too long to reconcile various accounts, too cumbersome, too costly, not readily auditable, and most important, not giving timely information to run this very complex enterprise more efficiently.

Now, I think to some extent we have to contrast what I am talking about with the vision of what is ultimately achievable. Large, complex U.S. companies and companies in other countries have dramatically improved efficiency and saved large amounts of money by leveraging technology, streamlining processes, and integrating very sophisticated logistical and personnel support systems with their financial systems. This is doable. It will take time. But studies have pointed out that extremely large amounts of money are savable by DoD as these programs are implemented. Part of our suggestion is that some of these efficiency improvement steps can be taken long before the full-scale financial integration is accomplished.

Now, about 15 years ago, David Packard, the legendary businessman, the former deputy SecDef, said "We all know what needs to be done; the question is why aren't we doing it?" Since then even more studies have pointed out the problem -- some problems. So to us as a study group the questions came back to what should be done and what is the most practical way to achieve it. And that's -- I'm going to first describe some of the frustrations of the current system, some of the what we perceive to be causes, and then what we think of as the fix.

One thing I ought to say is that the problems here are not per se unique.

One of our study group members said this looks in many ways like a conglomerate in the 1970s. Competition forced those companies to integrate their financial systems, and pressures of a different sort will force it here.

Some principal frustrations of the current system: the inability to provide consistently relevant, reliable, and timely financial data. "Timely" is essentially self-explanatory, but it just takes much too long to get the numbers that that are needed. Much too much has to be done with data calls, manual entry, et cetera.

"Reliable" means essentially accurate, but having accurate information doesn't necessarily mean that it's relevant in the sense that it's managerially useful, that it can be used for effective decision-making. If you don't have good data as to what it costs to perform various commercial type operations, it's very difficult, if not impossible, to benchmark against other comparable operations.

A simple example: If I'm running a military base, and I have good data as to what it costs for my uniform personnel, what it costs for my civilian personnel, what it costs for my energy costs, my parts and supplies, et cetera, throughout the base, but I can't extract the data as to how many of those costs should be laid against maintaining my fleet of vehicles or against just simple housekeeping for the base, then I have no ability to benchmark that against what are the costs of other bases running fleets, or what does it cost private-sector leasing companies to maintain their fleets. And then I don't know what effective improvement steps to take. What I'm talking about now is something called activity-based costing, which every recent study has recommended that DoD implement.

Secondly, in connection with this, we see large amounts of resources being expended with not useful bang for the buck, because of excessively convoluted business practices and excessive and duplicated process steps. Modern ERP [enterprise resource planning] systems would drive towards much more simplified, streamlined processes, and that is one of the steps that are being taken in that direction.

More needs to be done.

Second major area of frustration within DoD is there has just been, as I referred to before, an inability to provide CFO Act-compliant financial statements. And this leads to credibility problems with Congress, with the oversight agencies and within DoD. And there are examples that my colleagues can give if those are needed, but amongst other things, matching disbursements with obligations, contract closeouts, et cetera.

Now, causes. DoD's financial infrastructure was not set up to run an enterprise of remotely this complexity. DoD's financial architecture essentially consists of numerous feeder systems which feed information up to core accounting systems. They were originally designed to perform purposes in the stovepipes or areas in which they were set up, they were not designed to speak to the systems higher up. So what you have is, in a way, if you think of the kid's game of "whisper down the valley," where inevitably things become distorted as they go further down the chain.

And I'll give you just as a rule of thumb, the more interfaces you have, the more manual reentry that's required, the more different data fields that you have, the higher the error rate you're going to be and the greater amount of time and money and effort it will take to correct things.

The current DoD systems are not particularly hospitable to using COTS, commercial off-the-shelf systems. We think that is an exceedingly important thing because it is tremendously costly for DoD to build major systems themselves, and if you use commercial off-the-shelf systems, enterprise systems, the private sector will pay the cost of maintaining it because they have many other customers for it, and you will then be able to streamline your practices in conformance with what is built in to the software.

There's another major issue. If you customize the COTS too much, the commercial software supplier can't readily maintain it.

And then you have the problem, whether 10 or 15 years down the road, there are very few people here who really know the inner workings of the software that you've customized because you don't have lots and lots of other private sector companies bidding, maintaining it at the same time. So that is one of the major causes of the current situation: lack of a seamless end-to-end architecture.

Another significant cause of the current situation is insufficient standardization of DoD-wide core accounting and data classification. Now, we clearly recognize that the respective components and services have many unique needs which have to be respected. On the other hand, there are many core data elements which must be standardized, and we think to some extent historically the path of least resistance has been taken and units have been allowed to have their own data fields, and the centralized financial folks here have built translators for them which they call crosswalks. This situation has been likened to -- this is someone else's metaphor -- to a U.N. General Assembly with many different languages being spoken. And if you have that, you've got one of two choices. You either have to agree on a common language, or you have to have lots of translation. And they've done the latter, and this is not efficient. As reporting rules change, the translation work requires lots more updating, and it's very, very labor-intensive. Let me give you a very simplified example of what I'm talking about by lack of standardization. I'm going to go to the most simple level because, frankly, that's the level at which I most understand it.

You can have a service person, and her name can be Mary S. Jones, or it can be Mary Smith Jones, or it can be Jones, Mary S. Very small differences, very, very big difference if the -- if you have to have computers that integrate. Now add a little complexity to Mary Jones' life, and you have to add her Social Security number in there or some other elements about her. The more you increase these data fields from the trivial example I gave, the more complex it is for information to interface.

What is Mary's birthday? Is it January 1, 1970? Or is it 1-1-70? Or is it Jan. 1, '70? And you start adding these. Well, when you get up to real-life situations with several hundred data fields, and sometimes the several hundred data fields are mandated because of what we perceive as sometimes excessively complex reporting requirements, and the systems are not built to talk seamlessly together, someone is going to be doing a lot of manual reentry. Someone is going to be doing a lot of "crosswalks." And you can't reenter 200 things without just guaranteed dramatically increased error rate.

The vision we had is very simple. DoD should have, and I believe this leadership is dedicated to it having, relevant, reliable and timely information available to assist in managerial decision-making, and this means without excessively time-consuming data calls or six months to close its books. And relevant, as I say, is extremely closely interconnected with the ability to make managerial decisions which drive efficiency, improve delivery of services and dramatically save money. It's a cliche, but at some point a cliche grows up and becomes an axiom because it's been proven right -- (laughter) -- that you can't -- if you can't measure it, you can't manage it, and measuring depends on good financial systems.

Now, the elements of transformation. We've recommended an integrated, twin-track program to implement a radical transformation of DoD's financial management. And I'm not going to go into details. My understanding is that a report will be posted on DoD's web site. [ See http://www.defenselink.mil/news/Jul2001/d20010710finmngt.pdf ] But it's two tracks, and the first calls for a central oversight process under the comptroller for developing a DoD-wide architecture plan. And it must be an integrated plan for the whole department. In other words, when you build a house, you expect to have a common architectural plan for that house, not a separate architectural plan for the dining room and a separate architectural plan for the kitchen, et cetera, et cetera, but an integrated plan. And that is something that needs to be done, and it needs to be done with allocated authorities and responsibility and accountability, and that's crucial.

And then the second track, which we call "close-in success" calls for selecting and overseeing a limited number of intra-service, cross-service projects for major cost savings at high value benefit, even before we had the full completion of the integration of the department's systems. And this can be done with rougher and quicker methods and using activity-based costing.

Now, success in both tracks is dependent on a limited number of common elements, which I'll just sketch out to you. First, leadership and accountability. In our interviews, it was loud and clear, it came across to us that people are looking for vision and leadership and that the only that the type of program I'm talking about will occur if it is in actuality and in perception a very important priority of the SecDef and the senior DoD leadership. The development of this master plan and the accountability, people stressed to us the importance of regular progress reports to the comptroller and his principal staff and then to the SecDef and deputy SecDef. Happily, we really believe that there is a determination to provide that leadership and accountability.

Another element of part of this leadership and accountability, we recommended that this program be presented to Congress and the oversight agencies as a work in progress. It's going to take a lot of development, but much of what's needed can't be accomplished without congressional understanding and assistance in implementing change. And related to this, there needs to be a communication strategy within DoD that conveys to the department why -- and to other outside constituencies -- why this is important to the SecDef and to DoD.

Secondly, incentives. It's very important that, when you're talking about fundamental change, that the incentive system be properly aligned and at present, the study group felt that it was not fully aligned with the mission I'm describing. And firstly, we believe that components must be allowed to take advantage of some portion of their own cost savings by being able to retain some of the money saved for matters that they and the SecDef or the respective secretaries give a high priority to, so that they do not feel that "If I save the money, it's taken away from me."

Secondly, we think that promotions and other compensation-related benefits should recognize -- for DoD employees-- should recognize excellent accomplishments in this area.

Now another one of the common elements we feel needs to be in place is a manageable number of priorities. A great general said many years ago, "To defend everything is to defend nothing." And too many priorities means nothing really gets sufficient focus. So we need a hierarchy of and an abbreviation of priorities. And our recommendation was, given the comptroller's broad authority, that this be under his wing, reporting upward.

Part of this is, you have a lot of very capable, hardworking people in DoD, but you do not have, in our view, an adequate supply of the skill sets necessary to do the kind of systems integration work that we're talking about. And so we think DoD's leaders need a human capital strategy which would make broader use of private-sector partnering and contracting.

I've talked about streamlining and simplifying certain rules. And we'd very much like to see a focused sunset effort to eliminate excessively convoluted rules that build in -- have very, very difficult processing tails to them and that do not have remotely adequate value add to there.

We had some other changes, which I'll skip over and you'll see in the full report.

A common element, which I've touched on, I won't go into at length, was standardize, standardize, standardize. And when I say that, we are not talking about standardizing things which are truly, necessarily unique to the various services, but enabling us to reduce the burden of translation and crosswalks -- with rare exceptions, stopping the practice of investing in systems that don't incorporate standardization.

Now let me close on a note of optimism. This can be done. This can be effectively implemented.

DoD had a successful Y2K program. This shows that it can be accomplished.

Now, here were the essential elements of that program. And we're talking about building them into our recommended approach.

Y2K was a clear leadership priority. Everyone we talked to in this building said it was important, they understood it. It was regularly monitored. There was a clear sense of accountability. And a time line; boy, was that a date certain. And everyone that we talked to felt the program was accomplished well.

So you all have your own takeaways from what I've said. Mine are that there's a need for a clear, DoD-wide vision that crosses stovepipes. For this to work it's got to be one of the leadership's top priorities -- I'm not saying number one or two, but it's got to be very important with the attendant accountability down. I believe to be effective, congressional support and oversight agency support must be attained. Standardization we've talked about. A sunset provision and simplifying rules. That architecture and the implementation of an architecture for end-to-end, seamless systems integration. And then you can have all the activity base-costing in the world, but the numbers have to be actually used to take costs out of the system and to improve efficiency and to explore and adopt best practices.

Now, I'd like to close with some quotes here which the study group thought were quite relevant. One is from Deputy SecDef Wolfowitz, who said in testimony some time ago that "We have to engage our brains before we open the taxpayer's wallet." What we're talking about here is the financial intelligence necessary to do that. And then a quote from Rumsfeld's Rules which is analogous to "If you can't measure it, you can't manage it." "That which you require to be reported on you will improve if you are selective." "How you fashion your reporting systems announces your priorities and sets the institution's priorities." And -- I'm going to give you one last quote which I just picked up this afternoon: "Change is never easy in large organizations, but change we must if we're going to adopt to the requirements of the 21st century" -- Admiral Craig Quigley. (Laughter.)

We'll stop there, sir.

Quigley: Do you have time to take any questions?

Friedman: Sure. And if they're -- I urge you to make them as tough as you want, and I'm going to buck 'em to Nelson Toye and Carmen Covey and G. T. [Gerald] Thomas of the comptroller's office. They're my friends from Pricewaterhouse.


Q: How long do you think it would take to implement these changes? And how much would it cost to do it?

Friedman: We can't give you an answer. It's an extremely pertinent question. As best we can tell, there at present is no single number as to how much DoD is spending on trying to accomplish this. There isn't. And it will take some time to come up with an estimate. As far as timing, we couldn't get from people internally a sense as to how long on the current pace it would take. In the current pace, I wasn't hearing anyone expressing confidence of the year 2010. And I was hearing softer estimates that included "not in my lifetime." (Laughter.) We believe that the program we're talking about can expedite much closer in the 2010 number, but to come up with a hard perk chart is one of the things that will take some time to do in developing this master architecture.

Do any of the PWC people want to add or subtract from that statement?

Phillips: We agree.

Q: Can you talk a little bit about how this effort is different from -- I mean, there have been a lot of efforts to fix DoD's financial mess. How is this going to be different?

Friedman: Well, you know, one of the things that we came to very early is that we were not going to identify problems that had been unidentified before. This has been studied and studied and studied; ergo, you have David Packard's statement, we all know what needs to be done.

I believe the common denominator of success will be the first one of the elements that I talked about before -- senior DoD-wide leadership. I believe that's here. I believe this secretary -- I don't believe, I know-- this secretary has a keen understanding of the importance of financial management tools for running a complex organization effectively. The people in our group who have worked with him in the private sector understand he needs that. I know the deputy SecDef understands that. So I believe they will make this a high priority.

And, you know, this building was built in 18 months. If it's a high priority, this place can do wonderful things. If it's not a high priority, then you'll be asking that same question to someone standing in my spot 10 years from now. I do believe, though, that they accord this very substantial weight because they know, they know you can't run an enterprise of this complexity without immeasurably better financial information than you presently have.

I think there is a strong appetite for the kinds of metrics that should be on the senior managers' desks. We've briefed the service secretaries, we've briefed Mr. Aldridge, certainly Comptroller Zakheim, and they really believe this is crucial to running this DoD effectively. So that's what I base it on. Everything stems from that.

Q: You said an "extremely large amount" of money might be saved by this. Could you quantify that any better?

Friedman: Well, I'll give you numbers from a study from BENS, the Businessmen [Business Executives] for National Security. And their study, I think, is posted on their website, but my recollection is that they had a annual number of 15 to 30 billion dollars in their study. That was not our group's study. That was theirs, but they are very sensible people. (Aside.) Am I correct in recollecting that?

Now, back in the mid-'90s, the Defense Science Board did a study and to my recollection, they had a $30 billion number. Now maybe some of the low-hanging fruit has been plucked since that period, but you're talking about large numbers, and I think when people put out these numbers, I think they try not to overstate.

Q: If I could just follow that quickly, there's some very big operations, like the Social Security Administration, the Library of Congress; they have big operations, big computers.

Friedman: Right.

Q: And they seem to be operating well. Are you going to look at something like that to see if -- so you don't have to reinvent the wheel, so to speak?

Friedman: Well, I think that you would be looking -- when you have good enough numbers so that you can compare, your starting point is you have to know what it costs you to maintain this fleet of vehicles so you can then look and say "How am I doing compared to Hertz or Budget?" Until you have those numbers, you can't do it. You can take the most simple example; if I don't know what it costs to mow the grass and paint the barracks at a military base, I don't have the ability to benchmark against other people running military bases.

That gets to the activity-based costing, and that can be done in a relatively rough-and-ready way, even though over time you would like to pick those numbers off your systems.

Q: Two questions. I notice in the -- from the back of your report you talk about the people you've consulted. You didn't consult anybody from GAO, though you cite some of their reports.

Friedman: Yes.

Q: Why was that? Were you constrained only to talk to the Clinton executive --

Friedman: No, no, there was absolutely no constraints on who we were able to talk to, but we were under a very substantial time constraint.

I remember being told by a very experienced McKinsey consultant years ago that in the first month of a study you basically -- by the end of the first month you basically know what you want to say, and you spend the next five months documenting and talking to other people. We were working on very much of a quick march program -- two months, one for the documentation -- and there were a lot of people we would have liked to have talked to who we didn't.

I do not believe -- while it would have been helpful, useful, I do not believe it would have materially changed anything we said, because we were not plowing virgin ground. We had read the GAO reports, and they were not pulling their punches in terms of their criticisms.

Q: A second question, if I may. You mentioned twice -- when you talked about standardization, you then made the caveat that this wouldn't interfere with the truly unique needs of particular services, you thought. Did you actually find any unique needs? I mean, in -- surely in terms of large corporate activity, the services will do much the same things with much the same elements. Are there actually -- can you give me an example of truly unique services that require the truly unique accounting --

Friedman: I really can't, but I -- I really can't, but -- I'm sure they're there, but I'm not going to worry about it. They will make the case -- the least of my worries is, the services will not make the case about certain things that are unique. (Laughter.) What our basic view is, is that there should be that discussion, there should be that debate, but then there has to be a resolution. In our view, it should be the comptroller who does that.

The sense we have -- and I won't get into names, but talking to at least one serious, heavy person from a prior administration who felt that perhaps the one thing he would do over again is not be as permissive in terms of giving people time to debate this.

Q: Yes. (Laughter.)

Q: Is this a tall, heavy --


Q: I think we all know.

Friedman: Ma'am?

Q: How much of a sea change -- if everything that you had recommended were actually to be implemented, how much of a change to past -- or the current practices are you actually talking about? Would most people end up going back to ground zero and restructuring their accounting?

Friedman: I don't think so. I don't think so.

Nelson, do you want to take a crack at that -- Nelson Toye?

Q: Could you say your name and spell it, please?

Toye: Nelson Toye, T-O-Y-E.

I think that I agree with Mr. Friedman here that we're not talking about a ground-zero change.

What we're talking about is looking at best practices and taking the best from the systems and the processes and the practices of each of the DoD components, and hopefully standardizing around the best. And so nobody is going to start at ground zero. There's some practices that work very well in each of the DoD components. There's some systems that probably work better than others. And it's not going back to ground zero. It's looking at the best and then how do we go to where we want to go from where we are.

Q: Can you name any particular programs that you looked at or areas that are working extremely well that would serve as a model for what you're doing now?

Toye: I would prefer not to get into specific systems or programs at this point.

Friedman: You know, I -- why don't you stay here, Nelson, for -- a great Supreme Court justice said many years ago that with respect to some things, it's more important that they be decided than that they be decided right. And with an awful lot of these issues, just agree on a standard, and it's -- that's more important than debating.

I think best practices will become exceedingly important once you have responsive information in determining how you can more effectively run your operations. How long does it take you to do some -- perform some function which is comparable to other people in the private sector or other people in government? Once you have that -- and this is not a business issue per se; I mean, you can't imagine a well-run hospital that doesn't have very good metrics, and they can determine not only their costs but their mortality rate relative to other hospitals and their patient days in, et cetera, et cetera. But you have to have the systems, and they have to have a common standard for a particular operation or a particular procedure.

Q: Well, the fact that this -- what you're talking about sounds like it's pretty grim right now, that you don't even have the very basics to begin to save --

Friedman: I don't want to use the word "grim." I mean, this is a place that's capable of performing extraordinary feats, and it does its basic mission better than anyone else in the world.

I think that there is tremendous increases in credibility that can be obtained when they ultimately comply with the CFO Act, and I think it can be run much more effectively.

But the systems that they have have taken us through some major wars and other -- this is not an operation that is in any sort of shambles. It just can be run much more effectively.

Q: If there's really nothing really new in this study, then what's the point of it?

Friedman: I think the action program is rather specific. I think the action program is very specific. It didn't take an awful lot for people to know that you had to standardize, you had to have an end-to-end system, that you had excessively convoluted business rules. I think the secretary wanted people to look at it very quickly. He didn't want a study that dragged on for many, many months and gathered dust. Give us a blueprint that we can hit the ground running on. And the impression I have is that they have.

Q: Did you get much --

Quigley: One or two more.

Q: I've had my hand up since the first question. (Laughter.)

Friedman: Go ahead, ma'am. Sorry. Apologies. Apologies.

Q: I have actually two questions that I'll try and sneak in here. One is just on the close-in success approach that you're looking at. Could you give us a little bit more detail on the types of practical efforts that could be taken by the department to get some close-in successes, and the time frames that you have in mind for those to start panning out?

And then second, I know you've said that you didn't look at waste and abuse in any kind of detail, but I'm wondering if you guys have a good feel, given your experience and background, for the potential that these enormous budgets might have provided for fraud over the years.

Friedman: Let me say this. As you said, we were not looking at the second thing; but we did not get a sense that that was the problem or the issue here. As I said, we did not get a sense that money was going out to people who were not legally entitled to it and staying with it. What we did get a sense is it took an excessively long period of time to reconcile accounts, to match disbursements with authorizations, and that took a lot of person hours that should have been used on other things. And mostly, as I say, I think the cost was in terms of a lack of financial information that would (let) you manage things -- let you manage things better.

In terms of the practical close-in successes, we did not have time to get into a detailed study of that. We gave as a suggestion, which you'll see in the report on the website, that there be some focus on logistics. And the reason is, one, there's a lot of money involved in it, and two, there are numerous comparisons to the private sector.

Now, you have to be careful. You have to look at it. The material has need for war stocks. It can't afford the same just-in- time inventory in the sense that people are going to be in war. Its stocks of things like pharmaceuticals may have to be enormous as reserves for an emergency. When you get all finished with that, you have lots of comparisons to the General Motors of the world and the Fed Exes of the world, and we think large amounts of money could be probably taken out of that.

And as far as time frame, you need to have more work, but you're not talking about months, but I don't think you're talking about way over the horizon, either.

Q: Can I follow up real quick? Senator Byrd has asked Secretary Rumsfeld to get some level of transparency, more transparency into the financial management this year, with current spending.

Is that totally impossible, or is there some quick way that the secretary has to effectively come through on that?

Friedman: I think -- Nelson, you want to take -- you take a crack at that? (Laughter.)

Toye: Now I know why you asked me to stay. (Laughter.) It would be difficult to make substantial changes so that financial management processes in DoD would be substantially transparent in the near term, that is, in the next fiscal year. But progress can be made. This is a long-term effort. It's not a short-term effort. You're not going to see significant progress in terms of making financial management transparent in the near term.

Q: But --

Toye: That's not to say that no progress will be made. It will be slow but steady.

Staff: Last question.

Q: Sorry, the inspector general has said a couple of times that the level of frustration in this building over this issue is particularly high because they feel like they've been working at it, working at it, working at it and getting nowhere. How does that impact your recommendations and the whole issue of leadership? Can you lead people who have essentially thrown up their arms and said, "This is too big of a problem. We can't do it."?

Friedman: I do not have a sense that this is -- that people we've talked felt this is too big a problem. I --

Staff: Could you get closer to the mikes, please?

Friedman: Yeah, do not have a sense that people felt this is too big a problem and it is a challenge that is not worth undertaking, that it's, quote, in the "too hard" category. I have a sense the people were asking is this going to be a very high priority for this secretary, and will it consistently be a very high priority, or are you all going to just pay lip service to this? And I've given you our reaction, which is that it is -- it is and will continue to be a high priority. But I think people are going to want to -- are going to want to see that. And I think -- I think it is very easy when it is not such a high priority. We all know that we have more things in our "In" box than we have time for. And you respond to what you're told by whoever you report to, "This is a matter of some urgency." And I feel that if people are given that sense and people are given a DoD- wide architectural plan, timelines, "You, sir, are responsible for this phase," the wonderful phrase that I hear around here is a belly- button to point to. And if you are asked to be responsible for this chunk of work by such-and-such a period of time, and asked to report to the Deputy SecDef or the SecDef about it, I think it will get done.

But you can't ask people to do that with 33 different priorities.

Q: Can I just follow?

Friedman: Sure.

Q: How long would it take to get that kind of -- the kind of architecture you're talking about -- how long does it take to put one of those in place, and how much can DoD use the sort of plan that they have out there?

Friedman: We think the plan that they have there needs -- is not -- is a useful start, but is not -- and is something to build on. People were consistent in saying it's useful as a base, but it ain't enough, in and of itself. There needs to be mapping, further mapping of inventory systems; needs to be a lot more timelining. See if, Bill, do you want to take a crack at how long your guess is it would be to go from the FMIP [Financial Management Improvement Plan] to the full-scale architecture, if you started today?

Phillips: Yes.

Friedman: This is Bill Phillips of Pricewaterhouse, who is one of our consultants.

Q: Could you spell your name, please, sir?

Phillips: P-h-i-l-l-i-p-s. As Steve said, the base that we've got in the current Financial Management Improvement Plan has some good information, but it's not adequate. It's not complete; it's not consistent between the services. The department -- one of our recommendations was the creation of a architecture that probably will take a number of months -- not years, that's months -- to create the framework. As you build that framework, you take it to the next level and the next level, and so that framework is an ever-alive document, but it becomes the basis upon which decisions are made for systems, decisions are made for investments, and so I think that you're probably -- I don't know, I'm guessing, you know, six to nine months away from having that picture that becomes a blueprint for this journey that Steve has described.

Q: That's if they started today, right?

Phillips: Yes, sir.

Friedman: I think I'd say, in closing, that the strong sense we have is that this report is consistent with the views of the DoD leadership, it's not gathering dust, and that they've hit the ground running. So I believe that the internal thinking and infrastructure is well underway.

So thank you very much for your courtesy and patience.

Q: Craig, what is Mr. Toye's title?

Quigley: I'm sorry?

Q: What's Mr. Toye's title?

Toye: I'm the deputy chief financial officer.

Q: For the department?

Toye: Yes.

Q: Thank you.

Friedman: Thank you all.


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