By Jared Serbu
Reporter
Federal News Radio

Following the formal cancellation of a $450 million contract to build a modern, departmentwide back office IT system at the Department of Homeland Security, DHS officials are still assessing a path forward for modernizing disparate financial management systems that are hindering efforts toward obtaining a clean audit opinion.

Federal News Radio first reported the cancellation of the CACI contract last Thursday.

But in testimony Friday before the House Oversight and Government Reform’s subcommittee on Government Organization, Efficiency and Financial Management, DHS’s acting chief financial officer, Peggy Sherry, sought to reassure lawmakers that cancelling the contract did not represent a huge waste of money.

Sherry told the panel DHS only obligated about $3.5 million under the contract before work came to a stop.

“We had really just gotten out of the gate on this, and what we got for that was an integrated master schedule and a draft training plan as well,” she said.

The decision last week to cancel the huge financial management system contract came two months after a successful bid protest by a CACI competitor.

The Government Accountability Office found Homeland Security had changed the scope of the work before it issued the contract for the Transformation and System Consolidation (TASC) program in November. DHS officials have previously acknowledged that they went into the process without a sufficiently well-defined set of requirements, and whether or not industry would be able to meet those requirements.

And while DHS says its lack of financial clarity is a huge problem, the department is no longer trying to create an all-encompassing system all at once. Instead, Sherry said they’ll focus on incremental improvements that update those parts of the DHS that have critically outdated systems.

“Based on the changes in IT policy and governance, in addition to the grave fiscal environment we’re in, it really makes sense for us to focus in on our critical business needs and those systems that need to be modernized,” she said. “As we lay out our overall strategy, we’ll consider how we’ll include those components that already have modernized systems. But really right now, it’s focusing on those critical business needs and being able to do this in small, manageable segments.”

However, DHS components with critical business needs make up about 70 percent of the department, she said.

“They’re on systems that are either legacy or proprietary or not supported anymore,” she said. “In many instances they’re not integrated with the acquisition system or with the asset system, and what that means is that I can’t have strong internal controls.”

But in the meantime, Sherry said just getting the department ready for the prospect of implementing an integrated financial management system had forced DHS to make big improvements in the quality and accuracy of the data in its legacy systems, even if the systems themselves are sub-par.

She said even without a contract or a new request for proposals in place, a team in her office is working across the department to improve the fidelity of their data, in preparation for the eventual migration to a new system.

“What you can’t do is have data that’s not ready to move to the new system,” she said. “If it’s not cleaned up or if your balances aren’t good, there’s no sense in moving garbage into the new system. We’ve worked with the components to clean up their data. We’ve worked on developing change management plans, because so much of one of these financial systems modernizations really centers around changing the way people do their business. What we’ve been doing is really setting the foundation, getting the federal government ready for the contract.”

Sherry said DHS is still working toward the goal of obtaining a qualified audit opinion for its consolidated balance sheet for fiscal year 2011, but the department’s biggest challenge is the Coast Guard. She said her staff is meeting regularly with Coast Guard officials on their Financial Strategy for Audit Readiness.

“In addition, you have FEMA, which has functionality as well as system security issues that must be addressed,” she said. “That’s also a critical business need. And ICE (Immigration and Customs Enforcement), which is the accounting service provider for five other DHS components, also is identified as having system security and functionality issues.”

But even without a consolidated system in place, Sherry said DHS has made significant progress toward clean books. The department has gone from 18 material financial weaknesses five years ago down to six, all of which she said the department has isolated to the Coast Guard. Coast Guard Commandant Robert Papp issued a memo to the entire service in January that stressed the importance of correcting the service’s financial management shortcomings.

(Copyright 2011 by FederalNewsRadio.com. All Rights Reserved.)

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