DFAS Update Al Runnels Director Standards and Compliance

DFAS Update Al Runnels Director, Standards and Compliance, DFAS August 9, 2006 Integrity - Service - Innovation 1

DFAS – What We Do Mission: Provide accounting and finance services for the Military Departments and Defense Agencies. Sales & Service - $1. 62 B • • Military Pay Civilian Pay Retiree Pay Travel Pay Commercial Pay Accounting Services Others $190. 8 M $63. 8 M $52. 8 M $66. 3 M $178. 7 M $786. 6 M $280. 9 M People • 13, 767 employees * (Civilian and Military) • Located in: • 30 sites • 17 states • 3 countries Scope of Business • Processed 104 million pay transactions (5. 9 million people) • Made 6. 9 million travel payments • Paid 12. 6 million commercial invoices • Posted 127. 3 million general ledger transactions • Managed military retirement and health benefits funds ($234 billion) • Made an average of $455 billion in disbursements to pay recipients • Managed $13. 5 billion in foreign military sales (reimbursed by foreign governments) • Account for 282 active Do. D appropriations *Source: HR Flash Report June 2006 Integrity - Service - Innovation 2

Transformation Vision VISION: Transforming Today To Be The Trusted Financial Partner For Tomorrow’s Warfighter Integrity - Service - Innovation 3

Transformation Vision • Human Capital Strategy People • Business Intelligence • Benchmarking • Information Security Information • Enterprise Transition Plan • e. Commerce Leadership & Vision Technology Integrity - Service - Innovation Structure Process • BRAC • Centers of Excellence • High-Performing Organizations • Lean 6 Sigma 4

Structure - 2005 BRAC Law Limestone Rome Cleveland Bratenahl Columbus Arlington (HQ Liaison) Rock Island Omaha Oakland Denver Seaside Indianapolis Kansas City St Louis Patuxent River Dayton Norfolk Lexington Lawton San Bernardino San Diego Charleston Texarkana Red River San Antonio Pensacola & Saufley Field Orlando • Grow the DFAS site at Cleveland, OH, to not less than 1, 500 Full Time Equivalents (FTEs) • Grow the DFAS site at Limestone, ME, to not less than 600 FTEs • Grow the DFAS site at Rome, NY, to not less than 1, 000 FTEs • Maintain not less than the current FTEs 1 at the DFAS sites at Columbus, OH (2, 064 FTEs), and Indianapolis, IN (2, 632 FTEs) Japan Honolulu 1 Site Closed by BRAC Remaining Site Not Affected by BRAC Europe FTEs effective EOM August 2005 (Geographic Location Report, Military Personnel Report) Integrity - Service - Innovation 5

Organizational Structure - Current Director Deputy Director Office of Strategic Management Client Executives Information Technology Corporate Resources Internal Review Acquisition Management Organization Office of General Counsel Chief of Staff Deputy for Strategic Business Management Deputy for Operations Director Standards & Compliance Director Policy & Performance Director Transformation Director Business Requirements & Integration Director Cleveland Site Corporate Accounting Mission Area Director Columbus Site Accounting Operations Mission Area Director Denver Site Finance Mission Area Director Indianapolis Site Disbursing Mission Area Director Kansas City Integrity - Service - Innovation Sites included: Charleston Pensacola Norfolk Japan Oakland San Diego Pacific Sites included: Dayton San Bernardino Omaha Limestone Sites included: Lawton Lexington Orlando Rome Rock Island Europe San Antonio Seaside Texarkana St Louis 6

Organizational Structure - FY 2009 Director Deputy Director Office of Strategic Management Client Executives Information Technology Corporate Resources Internal Review Acquisition Management Organization Office of General Counsel Chief of Staff Deputy for Operations Deputy for Strategic Business Management Director Standards & Compliance Director Policy & Performance Director Transformation Director Business Requirements & Integration Japan Corporate Accounting Mission Area Director Accounting Operations Mission Area Director Cleveland Site Director Columbus Site Oversight Limestone Finance Mission Area Director Indianapolis Site Disbursing Mission Area Director Rome Europe Texarkana Integrity - Service - Innovation 7

DFAS Transformation 2006 Workforce Composition Business Environment 2009 2011 2012 DFAS BRAC Implementation Begins DFAS BRAC Implementation Complete 70% Technical 30 % Professional 50% Technical 50 % Professional 30% Technical 70 % Professional 1: 8 Supervisory Ratio 1: 15+ Supervisory Ratio 15% Technical 85 % Professional • Manual Processes • Large-scale rework • Automation of business processes • Less rework • Workforce with mature financial analysis skills • Migratory systems on-line • Overhead staffing and costs match or exceed industry benchmark • Workforce with minimal analysis skills • Legacy systems • Overhead staffing and costs exceed industry benchmark Integrity - Service - Innovation 8

DFAS BRAC Closures (FY 2006) FY 2006 Jan Feb Mar Apr Initiated Workforce Transition Initiated Workload Migration (LX, OK, SB, SS) (SA) (LX, OK, SB, SS) May Jun Jul Closed Lexington Oakland San Bernardino Seaside Aug Sep San Antonio I Installation Mission Agency Workload To Rome Initiated Workload Migration (SA) BRAC Vulnerabilities Mitigation Strategy • BRAC funding received • Funding • Parallel processing • Operational Impact • Tiger Teams • People • Staff Augmentation • Systems • BRAC Implementation Planning • Performance metrics • Incentive Programs • Advance Hiring • Customer Advisory Forum Integrity - Service - Innovation 9

BRAC Highlights • FY 2006 closures on schedule and within cost ü Lexington, Oakland, San Bernardino, Seaside (June 30) ü San Antonio (August 31) ü BRAC funds expensed in FY 2006: ≈ $35 million • Performance ü Workload pacing metrics in place ü Web-based Project Management tool in use ü BRAC performance metrics developed Integrity - Service - Innovation 10

FY 2006 Site Closures Integrity - Service - Innovation 11

BRAC 2005 • Sites Closed as of June 30, 2006 ü Lexington, Oakland, San Bernardino, Seaside • San Antonio on schedule for August 31, 2006 closure Indicates site scheduled for realignment in fiscal year Indicates site scheduled for closure in fiscal year Indicates site closed Integrity - Service - Innovation 12

Process - FY 2009 End State - Operations Highlights Center of Excellence Limestone • Transportation Working Capital Fund Accounting Center of Excellence Columbus Centers of Excellence Cleveland • Retired and Annuitant Pay • Garnishments • Acquisition Accounting including Contract Pay Centers of Excellence Indianapolis • Security Assistance Accounting • Out of Service Debt Centers of Excellence Rome • Medical Accounting • Special Ops Accounting Integrity - Service - Innovation 13

Workload Transitions • Analyze and stabilize workload prior to transition • Apply performance metrics prior, during and after transition; ensure internal controls are in place throughout process • Completed workload transitions ü ü ü ü San Antonio Travel Pay to Indianapolis Seaside Army Accounting to Rome Lexington Army Accounts Payable to Indianapolis Lexington Accounting & Accounts Payable to Rome Lawton Travel Pay to Indianapolis Kansas City Travel Pay to Indianapolis San Bernardino Air Force Field Accounting and Accounts Payable to Limestone ü San Bernardino Air Force Accounting and Accounts Payable to Columbus Integrity - Service - Innovation 14

Next Steps • FY 2007 Closures ü Dayton, Lawton, Norfolk, Pacific, St Louis, Orlando • Refine FY 2007 POA&Ms • Generate project management/performance reports • Schedule IPRs with customers Integrity - Service - Innovation 15

DFAS Summary FY 2005 FY 2011 • • Fewer locations: 101 9, 9152 employees 18 systems $1, 368 M operating costs 3 70% professional / 30% technicians Right employees with right skills Optimum number and mix of civilians/contractors • Pay for performance under NSPS • • • 30 locations 1 13, 8792 employees 92 systems $1, 615 M operating costs 3 70% technicians / 30% professional • Aging workforce • General Schedule Pay System Includes Europe & Japan Source: HR Flash Report September 2005 (civilian & military) 3 Current$ 1 Includes Europe & Japan Projected Civilian & Military 3 Current$ 1 2 2 People Information Leadership & Vision Technology Structure Process Integrity - Service - Innovation 16