DFAS Update Al Runnels Director, Standards and Compliance, DFAS

1. DFAS Update Al RunnelsDirector, Standards and Compliance, DFAS August 9, 2006 Integrity - Service - Innovation

2. DFAS – What We Do Mission: Provide accounting and finance services for the Military Departments and Defense Agencies. Sales & Service - $1.62B 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 DoD appropriations • Military Pay $190.8M • Civilian Pay $63.8M • Retiree Pay $52.8M • Travel Pay $66.3M • Commercial Pay $178.7M • Accounting Services $786.6M • Others $280.9M People • 13,767 employees * (Civilian and Military) • Located in: • 30 sites • 17 states • 3 countries *Source: HR Flash Report June 2006 Integrity - Service - Innovation

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

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

5. Limestone Limestone Rome Rome Cleveland Cleveland Bratenahl Bratenahl Rock Island Rock Island Columbus Columbus Arlington (HQ Liaison) Arlington (HQ Liaison) Omaha Omaha Indianapolis Indianapolis Oakland Oakland Patuxent River Patuxent River Dayton Dayton Denver Denver Norfolk Norfolk St Louis St Louis Kansas City Kansas City Seaside Seaside Lexington Lexington Lawton Lawton San Bernardino San Bernardino Charleston Charleston San Diego San Diego Texarkana Red River San Antonio San Antonio Pensacola & Pensacola & Orlando Orlando Saufley Field Saufley Field Japan Japan Japan Honolulu Honolulu Honolulu Site Closed by BRAC Site Closed by BRAC Site Closed by BRAC Site Closed by BRAC Europe Europe Europe Remaining Site Remaining Site Remaining Site Remaining Site Site Not Affected by BRAC Site Not Affected by BRAC Site Not Affected by BRAC Site Not Affected by BRAC Structure - 2005 BRAC Law • 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 FTEs1 at the DFAS sites at Columbus, OH (2,064 FTEs), and Indianapolis, IN (2,632 FTEs) 1 FTEs effective EOM August 2005 (Geographic Location Report, Military Personnel Report) Integrity - Service - Innovation

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

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

8. 70% Technical 30 % Professional 1:8 Supervisory Ratio 50% Technical 50 % Professional 1:15 Supervisory Ratio 30% Technical 70 % Professional 1:15+ Supervisory Ratio 15% Technical 85 % Professional • Manual Processes • Large-scale rework • Workforce with minimal analysis skills • Legacy systems • Overhead staffing and costs exceed industry benchmark • 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 DFAS Transformation 2006 2009 2011 2012 DFAS BRAC Implementation Begins DFAS BRAC Implementation Complete Workforce Composition Business Environment Integrity - Service - Innovation

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

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

11. FY 2006 Site Closures Integrity - Service - Innovation

12. BRAC 2005 • Sites Closed as of June 30, 2006 • 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

13. Process - FY2009 End State - Operations Highlights Center of Excellence Limestone • Transportation Working • Capital Fund Accounting Center of Excellence Columbus Centers of Excellence Cleveland • Acquisition Accounting • including Contract Pay • Retired and Annuitant Pay • Garnishments Centers of Excellence Indianapolis Centers of Excellence Rome • Security Assistance Accounting • Out of Service Debt • Medical Accounting • Special Ops Accounting Integrity - Service - Innovation

14. 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 • 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 • San Bernardino Air Force Accounting and Accounts Payable to Columbus Integrity - Service - Innovation

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

16. 30 locations1 13,8792 employees 92 systems $1,615M operating costs3 70% technicians / 30% professional Aging workforce General Schedule Pay System FY 2011 People Information Structure Leadership & Vision Technology Process DFAS Summary FY 2005 • Fewer locations: 101 • 9,9152 employees • 18 systems • $1,368M operating costs3 • 70% professional / 30% technicians • Right employees with right skills • Optimum number and mix of civilians/contractors • Pay for performance under NSPS 1 Includes Europe & Japan 2 Source: HR Flash Report September 2005 (civilian & military) 3 Current$ 1 Includes Europe & Japan 2 Projected Civilian & Military 3 Current$ Integrity - Service - Innovation