As you know, the Customs Service is an agency with a long history of excellence and achievement. We have brought this history to bear in our approach to planning and preparing for the modernization of the U.S. Customs service.

Today, we will be providing the Subcommittee with an overview of our modernization effort. We believe that you will find our approach both rigorous and thorough. We are planning for success. Specifically, my comments today will address the importance of automation to the Customs Service, describe in some detail our strategy for making the Modernization Program a reality, and review the funding requirements needed for Customs to proceed with developing the Automated Commercial Environment (ACE)-our Trade Compliance system that is our first automation project in modernization and the most critical.

The Customs Service, as you know, stands in the front line of defense at our nation's borders. On a typical day, our dedicated officers in over 900 U.S. field locations and 34 foreign offices perform multiple tasks associated with the successful performance of our mission. We examine 550 vessels, 45,000 trucks, 344,000 vehicles, and 1.3 million passengers. Our officers seize over 4000 pounds of narcotics and $1.2 million in drug money in a day. We make 67 criminal arrests of those involved in a various illegal activities, including drug running and money laundering. In our role as facilitator of U.S. trade, Customs processes over 58,600 import shipments worth $2.6 billion, monitors 27,000 export shipments, and collects over $60 million of revenue per day.

As you can see, Customs plays an important role in the daily life of American citizens. Therefore, it is vital that the automation systems upon which Customs relies to perform its mission-critical functions be up-to-date and capable of handling the ever-increasing pressure on the Service. And this is the problem.

Currently, the Customs Service relies on aging automation systems. In particular, Customs Automated Commercial System (known as ACS), which is at the core of our trade enforcement and compliance functions, is increasingly susceptible to short-term "brown-outs" and long-term failure. With an ACS system failure, even for a few hours, Customs work of protecting American borders becomes significantly more difficult.

ACS, now 16 years old, and with over 6 million lines of COBOL code, has become increasingly inadequate in meeting the growth and demands of the expanding international trade environment. Currently, Customs trade functions operate in an increasingly paperless work environment. We receive data electronically on 98% of all commercial importations and almost 40% of exports. Because of our reliance on automation and paperless processing, ACS outages can cause profound consequences to Customs operations as inspectors, import specialists, and entry specialists are forced to revert to an antiquated paper-based processing system. An instance of this recently occurred on March 2, 2000 at the Buffalo port of entry. During a 5-hour outage, the need to fall back to a paper mode caused entry documents to pile so high that the trade and Customs could not see each other over the counters. All of this paper had to be processed manually, causing a substantial drain on Customs time and resources.

Clearly, a system-wide outage like this that lasts for 5 hours, or potentially even a longer period, makes it even more difficult for Customs officers to perform such critical functions as stopping narcotics trafficking, countering terrorist threats, protecting domestic industry from illegal product dumping and copyright infringements, and protecting U.S. citizens from dangerous foods, medicines, and other goods.

Our current system automates old work processes that are inconsistent with the spirit and the letter of the Customs Modernization Act passed in 1993. This legislation requires Customs to provide certain services to the trade community, but the lack of adequate automation has made this impossible to deliver completely. Members of the trade community have made substantial investments in automating their Customs transactions. Our aging current system, however, requires onerous and complicated inputs and reporting requirements not in alignment with today's streamlined business procedures. The need now is for an improved system that will place U.S. interests at a competitive advantage in global commerce.

From an operational standpoint, Customs automation in general, and automation of its Trade Compliance system in particular, is exceedingly important to Customs ability to meet its current and future obligations. Automation is at the heart and soul of our commercial operations and is the key to our relationship with the trade community. The good news is that Customs has diligently worked, with the trade and others, to develop a solid strategic approach and plan for constructing a fully modernized automation system, the Automated Commercial Environment (ACE), that will solve the trade and enforcement needs of the present and the future.

The development of the ACE modernized system requires a consistent vision, well thought out planning, cost-efficient system investment, and as mentioned, a commitment to excellence. Today we will demonstrate the steps we have taken to prepare for modernization. We believe you will agree that Customs has done its work and is ready to move forward.

As well, we have undertaken rigorous analyses to determine the funding requirements needed to accomplish our modernization goals in the most cost-effective fashion. In Fiscal Year 2001, we are requesting $338.4 million to operate our existing systems and begin building our modernized systems.

The focus this Subcommittee has placed on ACE has strengthened our preparations. Customs is prepared to initiate and manage the modernization tasks that will advance the Customs mission for the protection of the nation's borders.

STRATEGY
Changes to the global trade environment have revolutionized the way the world does business. In particular, the impact of the Internet on e-commerce has created a new realm of enforcement challenges for Customs. Our Strategic Plan positions the agency to address this and other emerging challenges. But accomplishment of strategic goals requires the support of a fully modernized automation system. We have taken several steps to ensure that we undertake these major automation projects in a way that most ensures their success.

First, we redesigned our business planning approach, with a specific focus on business case development and cost-benefit analyses to determine whether a project is cost-effective (or not) to the government.

Second, we implemented improved IT policies and processes that demonstrate our ability to manage investments and ensure control over cost, schedule and product quality.

Third, we prepared our organization to manage the breadth and scope of the modernization effort. Specifically, we restructured our information technology organization, creating a new Customs Modernization Office (CMO), which is tasked with managing Customs Modernization. The CMO is taking the lead in developing Customs day-to-day strategy for the modernization effort, in conjunction with the MITRE Corporation. Together with MITRE, and with input from industry, we have developed a Request for Proposals (RFP) to hire a Modernization prime contractor with the requisite business and government experience needed to ensure our success.

Business Planning

Customs business planning process identifies the agency's mission-critical needs, ensures that Customs invests in the most cost-effective systems, and focuses on successful outcomes, once systems are acquired.

The Customs business planning process is initiated through Customs long-range strategic planning process, which identifies key agency business goals and objectives. As part of strategic planning, Customs identified modernizing its systems as a mission-critical need that is essential to meeting agency-wide strategic goals. In other words, the success of Customs future operation is tied to modernization of our automation.

As stated earlier, the strategic planning process identified Customs import processing system as the system most in need of Modernization, for a number of reasons. The current system uses outdated technology that does not allow us to comply with the automation requirements of the Modernization Act of 1993. It does not support our new work processes such as account management, transaction reconciliation, and remote location filing. It is prone to costly slowdowns and episodic failures. Moreover, our stakeholders are demanding a change.

To ensure that this system meets Customs newly developed investment guidelines, and at the recommendation of this Subcommittee, Customs initiated an independent cost-benefit analysis (CBA) of the options open to the agency.

And to keep us on track once we start to modernize, Customs has also developed a Modernization Plan to identify specific strategic and technical objectives, our management approach, and the initial timelines or phases of modernization activities.

Cost-Benefit Analysis

Customs brought in an experienced consultant who provided an independent analysis as a means of assisting the agency in determining the most cost-effective approach to improving our import processes. The consultant compared an upgrade of the existing system (ACS) to the development of a new system (ACE), and estimated both internal and external benefits.

The results of the CBA supported the development of the ACE system. Specifically, the cost-benefit analysis estimated internal economic benefits for Customs development of the ACE. These included improved revenue recovery (91 percent of the benefit) from enhanced operational efficiencies for the government, and benefits associated with various labor avoidance or productivity improvements.

The CBA indicated that the new system offers the Government the greatest return. With an initial 7-year investment of $1.4 to $1.8 billion, ACE will yield a lifecycle benefit of $3.3 billion-a 13.7 percent return on investment.

Beyond this, ACE offers substantial functional benefits to Customs and the trade.

Business benefits include account-based management, remote location filing, significant reductions in data entry, periodic payment options, paperless border "just-in-time" processing, and uniform inspection procedures for all ports.

ACE related technology benefits will offer improved reliability, reduced maintenance, and adaptability to new technologies, and will enable Customs to meet the growing demand for the system.

ACE enforcement benefits include improved targeting of potential trade violators, including targeting for violations ranging from minor trade related infractions to ones related to terrorist activity, narcotics and money laundering.

The CBA estimated external trade benefits and the benefits to society as a whole should Customs implement ACE. Specifically, the analysis identified $973 million in reduced transaction costs for the trade community, and another $900 million to society at large from enhanced narcotics interdiction associated with the system.

Further supporting the move to ACE, Customs and the trade have identified many downside consequences associated with ACS outages, if we continue to rely on this 16-year-old import system.

Examples of these include a $12 million per day cost to the trade that is caused by transportation delays and the need to perform manual import processes, factory shutdowns in as little as 3 hours after cargo disruption, and a Food and Drug Administration backlog of entries that would probably be impossible to overcome after a 3-day "brown out."

Modernization Plan

We have prepared a Modernization Plan to guide the overall program development in concert with a world-class systems developer and integrator. The plan presents an overview of the Customs Modernization Program; describes the initial planning and activities to date, as well as a high-level schedule for future enterprise development; and identifies the current funding requirements.

Improved Information Technology Policies and Processes

In addition to our strategic planning activities, Customs has improved its technical policies and processes. We are working with the General Accounting Office (GAO) to address its recommendations. Specifically, Customs created an Enterprise Architecture and Investment Management Process (IMP) to help us make sound technology investment decisions. We have established a continuous improvement program for acquiring and building systems. The Customs Enterprise Architecture was recently cited by the government's Chief Information Officer Council as "most improved," and has been identified as "best practice" by the same organization. Over the course of the past year, GAO closed all outstanding architecture issues. Customs has also implemented a prototype as a means of validating several aspects of ACE functionality, prior to any work on the new import system.

Enterprise Architecture

Major legislative and regulatory requirements and industry best practices require that information technology be managed as an investment that provides value to the business. The relevant legislation and regulations include the Clinger-Cohen Act; the Chief Financial Officers Act; the Government Performance and Results Act (GPRA); the Federal Streamlining Act; the Paperwork Reduction Act; and Office of Management and Budget (OMB) Circulars A-11 and A-130. Clinger-Cohen and the OMB Circulars require that investments be approved using an enterprise architecture.

Customs developed an enterprise architecture that follows the A-130 guidance for compliance with the Clinger-Cohen Act. The Customs Enterprise Architecture captures and integrates information describing important business and technical aspects of the Customs enterprise. The Customs Enterprise Architecture provides the basis for strategic and operational plans and budgets. This ensures that the information technology we acquire and or develop is of widespread benefit to Customs.

Investment Management Process

Further, Customs has implemented an Investment Management Process that uses the Enterprise Architecture to ensure that information technology projects and infrastructure are aligned with our mission functions. The Investment Management Process provides Customs with the capability to drive budget formulation and execution for information technology investments, and to establish and maintain a business-oriented decision process.

Overall, the Customs Enterprise Architecture and Investment Management Process provide the necessary foundation for modernizing our systems to meet future demands.

Software Development and Acquisition Policies and Processes

Customs is improving its software development and system acquisition processes by requiring industry best practices within the agency (i.e., Capability Maturity Models developed by the Software Engineering Institute at Carnegie Mellon University). Customs initiated activities in this area through an independent assessment of its software development capability. We developed an Enterprise Process Improvement Program along with System Acquisition and Software Action Plans based upon the lessons learned. New processes were piloted and refined. Customs developed several key products in support of our improved software development and systems acquisition processes. These include, the Enterprise Process Improvement Program Strategic Plan that defines the objectives and approaches to manage the improvement of processes; the Action Plan for System Acquisition Processes that defines the activities required to improve system acquisition; numerous documents that support this process, such as policy statements, briefings, processes, charters, templates, frameworks, training information, resource estimates, standards, and procedures.

Prototype of Modernization Functions

The National Customs Automation Program (NCAP) was designed as a prototype to demonstrate the modernization functions in ACE. Operational at Detroit, Port Huron, and Laredo since May 1998, NCAP validates the benefits of a modernized import system. It provides totally electronic release of cargo for highly compliant importers at these busy border locations. The "Big Three" automakers have indicated great satisfaction with the efficient processing and quick cargo release NCAP offers. In an environment where time is money, the trade community has realized the enormous potential for savings with this automation. For example, NCAP automation has made possible savings of up to 1.5 hours in the time it takes to process a truck shipment. It is estimated that nationwide deployment of NCAP could save truck carriers as much as $144 million annually.

Our NCAP experience shows how automation can expedite low-risk trade activity and allow port staff to focus on curtailing non-compliant or illegal activities. Based on the positive results of the prototype, the trade has indicated its desire for complete ACE development and deployment, and again we refer you to the attached tables, which describe many benefits beyond the electronic release of cargo.

Organizational Preparedness

To be prepared to implement nothing less than the complete overhaul of one of the largest and most complex automation systems in the federal government, Customs needed to make organizational changes to ensure its complete success. A major part of these changes required a reorganization of the Customs Office of Information and Technology (OIT). Because of my background in successfully implementing large-scale government projects, I was brought in to lead that effort.

In 1999, I reorganized the entire OIT, and hired two experienced, highly respected IT managers - one from the federal sector and one from private industry - to head up the operational divisions. At that time I created a Customs Modernization Office (CMO) that reports directly to me and is responsible for ensuring the quality of the Customs modernization effort at every level. To advance our acquisition and strategic planning process, we hired the MITRE Corporation, a company with extensive government background in supporting projects of this size. And to ensure clarity in roles and responsibilities in implementing the Modernization Program, we developed a governance framework that defined the roles, responsibilities, and processes of our new organization. As the final stage of our preparations, we have prepared an RFP to enlist a top-notch prime contractor to help us design, build, and integrate the needed modernized systems.

Customs Modernization Office

As noted, Customs established the CMO to plan and implement the Modernization Program. To date, the CMO has directed all acquisition activities and the planning activities for program management, program control, risk management, and configuration management. The CMO draws on resources from Customs Office of Field Operations, Office of Information and Technology (OIT), and MITRE.

The CMO is charged with developing an overall management approach for the project. As such, it is in the process of developing an overall program strategy, schedule, and resource allocation plan (Modernization Plan); a fully developed plan that describes the overall management of the elements of the Modernization Program (Program Management Plan); a plan that identifies program risks and mitigation strategies (Risk Management Plan); and a plan that ensures communications to Customs many audiences, including Congress throughout all phases of modernization (Communications Plan).

However, funding for the CMO is almost depleted. The additional plans and completion of the acquisition of a prime contractor are dependent on FY2000 funding of $12 million.

MITRE Support

MITRE is a private, independent not-for-profit organization, chartered in 1958 by the U.S. Government to work in the public interest. MITRE assists the Government with scientific research and analysis, and with systems engineering, development, and acquisition.

In 1998, the Internal Revenue Service became one of MITRE's sponsoring agencies. MITRE provides support to Customs under the IRS sponsoring agreement and associated contract.

Customs is applying MITRE's experience with large-scale acquisitions and advanced systems development to assist the CMO with program management planning, assist with the development of mature acquisition processes, including the development of the Source Selection Plan, and RFP for the Modernization prime contractor, and provide independent technical evaluation of Customs and prime contractor activities.

As is the case with the CMO, the MITRE support is dependent on the $12 million funding request for FY2000.

Governance Framework

Customs developed a Governance Framework to control and manage the Government and contractor organizations in the Modernization Program. The Governance Framework clearly defines the roles, responsibilities, and processes for the Government and contractor entities.

Modernization Prime Contractor

The next step toward modernization is the release of the RFP and the selection of a prime contractor who will design, build, and integrate the modernized systems. Customs and MITRE have prepared the necessary documentation for this acquisition.

Once on board, the prime contractor will help refine the Modernization Plan, Master Schedule, and Modernization architecture. The prime contractor also will provide program management, systems engineering, systems development, systems implementation, and technology insertion and refreshment capabilities. The prime contractor will begin work on ACE as one of the primary tasks under the Modernization Program.

FUNDING
Customs is ready to move forward with Modernization. We have determined the funding requirements to accomplish our modernization goals in the most cost-effective fashion.

FY2000 Funding Requirements

As you are aware, we have worked with the Department of Treasury to identify $3 million needed to continue NCAP through this fiscal year. On behalf of Commissioner Kelly, I want to thank the Committee for your quick approval of this action. However, we still require $12 million for the CMO. These funds are required to continue the acquisition process for a modernization prime contractor and to address remaining GAO issues. The current contract funding for MITRE Corporation will be exhausted on or about April 7, 2000. We are working closely with the Department of Treasury to identify a funding source to keep this effort alive. With this funding, we will be able to issue the Modernization RFP, thereby avoiding delays, which could potentially increase the total costs of modernization in the out years.

In addition to the immediate need for $12 million to continue with the acquisition effort, we also need a commitment that at least $25 million will be available in FY01 to award the contract and fund initial task orders. This $25 Million is included in our FY 2001 budget request.

FY2001 Funding Requirements

For FY2001, we are requesting $338.4 million. This includes $210 Million for ACE, including $139 million for development of the ACE software and $71 million for enterprise infrastructure improvements, such as networks, routers, and computers. The infrastructure improvements are required for ACE and will also support all future modernized systems (e.g., Automated Export System, Automated Targeting System, and Administrative and Financial Systems).

This funding request is based on the detailed cost-benefit study mentioned above, and has been validated by two independent sources other than the consulting firm that developed the CBA.

This amount also includes $123 million for maintaining ACS and continuing Customs automation operations. This funding is for software maintenance; a database management system; data center hardware, software, and facilities; extension of the networks; field equipment; and operations.

Finally, the remaining $5.4 Million will fund the International Trade Data System (ITDS). Customs needs these funds to continue development of this integrated, government-wide repository for the electronic collection, use, storage, and dissemination of international trade data.

The budget request of $338.4 will enable Customs to begin the first phase of ACE modernization. We expect the total cost of ACE modernization to be $1.4 to $1.8 billion over the next 4 years of development and 3 years of operations and maintenance. Modernization of our enforcement and administrative systems, also critical to Customs future, will begin after the ACE modernization is under way if funding is provided.

CONCLUSION
Customs is faced with ever increasing and changing demands on our people. Every day, our officers on the front lines desperately need the advantages of modern automation to perform effectively as guardians of our Nation's borders.

Customs has prepared itself for modernization by implementing a thorough Capital Planning process. We have hired an experienced CIO to lead our modernization effort, performed extensive strategic planning, and demonstrated the cost-effectiveness of our approach, which will provide substantial business, technical, and enforcement benefits to the government and the trade. Moreover, our organization, processes, and expert support are ready to guide and manage the Modernization Program. And lastly, we have taken the steps necessary to hire and manage a world-class systems developer to assist us with this most important endeavor.

Customs Modernization requires predictable and adequate funding. We need your continued support.

This concludes my statement for the record. I appreciate the opportunity to appear before you today. Again, I particularly want to express the Commissioner's gratitude to this Subcommittee for its tremendous support of Customs in the past and your ongoing interest in our automation efforts.