implement the Department's technology strategy. These common components, including integration “bus", business-process management service, and federated identity management, will support re-use of data and systems within DHS, and will align with the technical architecture recommended by the Information Systems Council for establishing a national terrorism information-sharing environment.

An increase of $6 million is requested for the Smartcard Initiative to provide a common set of credentials for both physical and cyber identification for Department employees. These credentials will be used by all DHS employees to access appropriate data stores and facilities within the enterprise. As a result, this initiative will enable DHS to strengthen its physical and cyber infrastructure while facilitating the movement to a totally electronic business environment.

The FY 2006 Budget also includes an important new Financial Management initiative:

An increase of $5,220,000 is requested for compliance with Public Law 108-330, The Department of Homeland Security Financial Accountability Act. The Act subjects DHS to the provisions of the Chief Financial Officer's Act of 1990 (CFO Act), the Federal Financial Management Improvement Act of 1996 (FFMIA) and other regulations. The law also requires that the annual Performance and Accountability Report (PAR) include an assertion by the Secretary of DHS on the adequacy of internal controls in the Department in FY 2005 and an audit opinion of those internal controls in FY 2006. These requirements for internal control reporting and audit, coupled with the related requirements of the CFO Act and the FFMIA impose significant management challenges and resource demands on the Department. To comply with regulation, OCFO must design and implement controls that reflect the DHS strategy, and that allow reporting to Congress and to Department managers for performance assessment. In FY 2006, OCFO will also launch a major standardization project in all financial management and operations areas, concurrent with the eMerge roll-out and migration. OCFO will increase budget execution oversight and guidance of the OES by conducting quarterly reviews, and will increase technical assistance to bureaus that are struggling financially.

Mr. Chairman, in addition to laying out the FY 2006 budget request for Departmental Management and Operations, I will also elaborate on some of the accomplishments of this Department relating to the integration of the 22 agencies that were brought together to form DHS.

Shared Services

In July 2003 an integrated project team was established to realign and transform support services for the mission delivery employees assigned to Immigration and Customs Enforcement (ICE), Customs and Border Protection (CBP), and U.S. Citizenship and Immigration Services (USCIS). This was especially difficult because the former Immigration and Naturalization Service, from which both ICE and USCIS originated, was highly decentralized, and CBP was highly centralized. The team was to develop a

basis for shared services, consolidate services where appropriate to realize economies of scale, and ensure accountability. The result was that USCIS, ICE, and CBP each became primary service providers for selected services. For example, CBP provides facilities acquisition and management, ICE provides supervisory leadership training, and USCIS provides records management. For some services, however, the three components remain self-supporting. Those services include procurement, personal property, budget, and labor and employee relations. Within the Department, this is referred to as the “TriBureau" effort.

On March 1, 2003, DHS faced the daunting task of supporting 22 different components receiving services from nine different parent agencies. To provide continuity of service, DHS signed Memoranda of Understanding (MOU) with each of the parent agencies to continue that support. On May 1, the Under Secretary for Management established a transition team to consolidate support services throughout the department. The team identified 255 unique services in the 22 components and DHS headquarters resulting in 3,457 separate services requirements. The services were catalogued under eight lines of business: administrative services, human resources, information technology, procurement, financial management, civil rights, legal, and security.

Financial Management

A critical component of this Department's operation is sensible financial management and sensible financial management requires informed financial and management decisions. To ensure policy decisions are made based on sound rationale, such as a program's contribution to our strategic goals and measurable results, DHS has put in place a comprehensive planning, programming, budgeting and execution process and an investment review process.

DHS is continuing its efforts to functionally integrate the financial management line of business activities within the department. We are identifying and realizing savings for the Department by reducing and consolidating the number of disparate budget, finance, and accounting processes, providers, and systems. Since the Department's inception, we have reduced the number of accounting providers from eighteen to eight and have consolidated the number of disparate bank card programs from 27 to three. We are continuing to define Department-wide standard operating procedures and policies, particularly in the areas of budget execution, financial management, and financial reporting and are continuing to provide training to Organizational Elements of the department on financial management, and the cycle of Planning, Programming, Budgeting, and Execution.

We are designing and implementing unified, Department-wide internal controls that reflect the DHS strategy, and that allow reporting to Department managers and to Congress. In FY 2005, the Secretary of DHS will make the Department's first assertion about the adequacy of its internal controls in the Performance and Accountability Report (PAR). These accomplishments are preparing DHS for the audit of internal controls in FY 2006 that is mandated by the DHS Financial Accountability Act.

DHS continues to implement its three-year strategic audit plan in order to systematically and continually reduce and eventually eliminate material weaknesses and achieve an unqualified opinion on the consolidated statements.

DHS is increasing budget execution oversight and guidance for all agencies, and in FY 2005, the Office of the CFO will conduct mid-year agency budget execution reviews and will continue to provide technical assistance to DHS agencies that encounter financial issues.

The Office of the CFO also continues to conduct thorough program analysis and evaluation and provide the executive leadership of the Department with sound and informative data upon which to base decisions about the Department's resource allocation and capital investments.

At the core of our planning process is the Future Years Homeland Security Program (FYHSP). Section 874 of the Homeland Security Act of 2002, requires the Department to prepare the FYHSP. The FYHSP process will help ensure that current and out year program requirements are properly identified, planned, and aligned with DHS goals and priorities and have measurable meaningful performance outcomes.

We have established an Investment Review Board (IRB) and Joint Requirements Council (JRC). The JRC identifies crosscutting opportunities and common requirements among DHS Organizational Elements for investments and aids in determining how best to ensure that the Department uses its resources wisely and in the best interest of the American public. The IRB is an executive committee that reviews high-level investments for approval and also serves as a forum for discussing investment issues and resolving problems requiring senior management attention. Specifically, the IRB and JRC review major capital investments to:

• Integrate Departmental priorities, resource planning, investment control, budgeting, acquisition, and investment management to ensure resources are wisely used.

• Ensure that spending directly supports and furthers DHS's mission and provides optimal benefits and capabilities to stakeholders and customers.

• Identify poorly performing programs and investments so corrective actions can be taken.

• Identify duplicative efforts for consolidation and mission alignment when it makes good sense or when economies of scale can be achieved.

Essential to sound financial management is a sound and robust financial management system. When DHS was created, we inherited over 100 resource management systems from the 22 organizations that were merged to create DHS. Few of these systems were integrated, several remain outdated and many have limited functionality. To address this problem, the Department has undertaken a resource transformation initiative entitled eMerge'. The goal of eMerge, which stands for "electronically Managing enterprise resources for government effectiveness and efficiency", is to improve resource management and enable the bureaus to move "Back Office" effectiveness and efficiency savings to "Front Line" Operations.

eMerge' is a business-focused program that seeks to consolidate and integrate the Department's budget, accounting and reporting, cost management, asset management, and acquisitions and grants functions. Once procured and developed, the solution will be rolled out in several phases focusing first on those organizations most in need of improved basic financial management services. eMerge' is currently in the midst of a pilot phase, and as eMerge is implemented over the next few years, it will greatly enhance Departmental visibility, oversight and accountability of component operations and financial management.

Funding of $30 million in the FY 2006 budget will continue implementation of the eMerge' solution that delivers accurate, relevant and timely resource management information to decision makers. By delivering access to critical information across all components, the Department will be able to better support its many front-line activities. It focuses on the areas of accounting and reporting, acquisition and grants management, cost and revenue performance management, asset management and budget and will be integrated with MAX

HR

Procurement & Acquisition

Within the procurement and acquisition arenas, the Department has consolidated acquisition support for the 22 legacy agencies within eight major procurement offices within DHS. Acquisition support for S&T, IAIP, USCIS, OSLGCP, the Office of the Secretary and the Under Secretary for Management, as well as other headquarters customers has been consolidated within one major procurement office.

DHS has established an Information Technology Acquisition Center (ITAC) within the department, chartered with leading the effective and efficient acquisition of the billions of dollars of information technology goods and services that the department consumes.

The Office of Small Disadvantaged Business Utilization (OSDBU) has created a robust and innovative outreach program for its constituency. Outreach includes counseling on how to market to DHS and its buying activities and provides opportunities for these small businesses to engage both federal government employees and large business concerns that may be interested in the supplies or services these firms offer. The OSDBU has conducted extensive outreach to the Department's business partners and has assisted in the development of a website designed to assist the private sector in realizing business opportunities with the Department.

DHS has also implemented new and consolidated acquisition policies and procedures. (Homeland Security Acquisition Regulations and Homeland Security Acquisition Manual) that are among the most flexible in the entire federal government. Under them, simplified selection procedures are authorized for "commercial item" purchases of $7.5 million or less that's 50 percent higher than most agencies - and red tape can be slashed altogether for so-called "micro-purchases" under $7,500, triple the normal amount. Publication of this regulation and guidance was another major step in combining the

cultures of 22 disparate agencies by ensuring that these organizational elements now operate under a single, DHS-wide program regulation.

We have also established a department-wide program for strategic sourcing and supply chain management. Specifically, DHS has initiated 15 cross-functional commodity councils tasked with creating department-wide sourcing strategies covering $2.4 billion worth of goods and services. Councils govern a wide range of requirements, from simple items such as office supplies, to more sophisticated requirements, such as boats and aircraft and their maintenance, and complex IT needs. A recent handgun contract resulted in $1 million in savings by consolidating the testing requirements and nearly $5 million in price savings in FY04. Other significant savings have also been realized in the early stages of the strategic sourcing program - for FY 04 alone, a total of $55 million was saved Department-wide and the department is expected to achieve nearly $100 million this fiscal year.

The Department has already demonstrated several examples where efforts to achieve significant savings have been initiated.

• DHS has signed several enterprise license agreements (i.e. Microsoft, Oracle and Autonomy) that will be expected to save roughly $35 million in FY05 and roughly $130 million over the next five years.

⚫ Border patrol has saved over $240,000 in acquisition costs by using a Coast Guard contract to acquire new boats and has also benefited from Coast Guard's extensive development and testing prior to contracting for the particular craft.

The National Marine Support Center (NMSC), operated by ICE's Air and Marine Operations, has entered into discussion with Honda on becoming certified to perform warranty work on their outboard engines. This will allow them to use their expertise to support Coast Guard in outboard engine maintenance and to bill Honda for warranty repairs. It will also allow NMSC to acquire parts at dealer cost.

In February of 2004, DHS announced its partnership with the Department of Defense's (DoD) EMALL program, which is an internet-based marketplace that allows DHS personnel the ability to access over 300 vendor catalogs containing more than 12 million products while providing DHS with a one-stop shopping experience to acquire the goods and services needed to support DHS' mission. The partnership with the DOD EMALL enables DHS to participate in one of the largest existing government-to-business exchanges as well as achieve a projected $8 million in department-wide savings in the purchase of office supplies alone in FY 05.

Human Capital

In the area of human capital, we have made tremendous strides towards organizational efficiency and unified policy. The Department has managed to consolidate the 22 different human resource servicing centers that existed and reduced the number down to