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Testimony on the Year 2000 Date Issue by John J. Callahan
Assistant Secretary for Management and Budget, and
Chief Information Officer
U.S. Department of Health and Human Services

Before the House Committee on Government Reform and Oversight, Subcommittee on Government Management, Information and Technology,
February 26, 1999


Good morning. I am John Callahan, Assistant Secretary of the Department of Health and Human Services for Management and Budget (ASMB) and Chief Information Officer (CIO). I am pleased to appear before this Subcommittee to provide you with a report on the accomplishments and the challenges faced by the Department of Health and Human Services (HHS) in assuring that our systems are Millennium compliant. I offer my comments on behalf of the Department and the Program Support Center (PSC).

The Secretary, the Deputy Secretary, and I have declared the Year 2000 date issue to be our highest information technology priority. We have taken and will continue to take strong actions to ensure that HHS information systems are Year 2000 compliant.

We have involved all parts of our organization, including staff with expertise in information systems, budget, human resources, and acquisition management in solving the Year 2000 problem. No matter what else we do and what other initiatives we undertake, we must ensure that our ability to accomplish the Department's mission is not impaired by the Y2K problem.

For this reason, we established December 31, 1998 as our internal deadline for Year 2000 compliance of mission critical systems intentionally setting it 3 months ahead of the official government-wide deadline of March 31, 1999. This was done in order to provide a full year of operations in which to detect and remedy any adverse interactions among HHS systems and those of our many service partners, including other Federal agencies, states and local governments, tribes, and contractors. As of January 31, 1999, most of our mission critical systems were Y2K compliant.


To meet our Year 2000 responsibilities, we have taken a series of strong administrative actions. We have encouraged aggressive reallocation of funds, where necessary, to meet Year 2000 deadlines; we have established direct reporting lines between staff working on year 2000 activities and the Operating Division (OPDIV) Chief Information Officers. Each OPDIV CIO is responsible for regular reporting on Year 2000 efforts directly to the OPDIV head and the Department's Chief Information Officer until Year 2000 date compliance is achieved.

HHS has also taken action to retain, re-employ, and attract qualified information technology professionals, using both employment and contrActing authorities. On March 31, 1998, HHS received Department-wide personnel authorities from the Office of Personnel Management (OPM) to waive the pay and retirement reduction for re-employed military and civilian retirees who return to work on Y2K remediation. To date, the Health Care Financing Administration has used the waiver authority to reemploy forty-one annuitants and the Program Support Center has hired one annuitant.

HHS agencies collect a tremendous amount of information that requires data exchanges. The Department has inventoried our data exchanges and contacted our service partners to emphasize the importance of assuring Year 2000 compliance. HHS is working with the National Association of State Information Resource Executive s (NASIRE) and others to assure a coordinated response. On April 22, 1998, HHS provided a listing of State interfaces to NASIRE for its review of completeness and accuracy, and we will update this listing monthly until all of our State interfaces are compliant. HHS continues to update the listing on the GSA web site for NASIRE review. In addition to data exchanges with States, HHS systems also exchange data with other federal agencies, local governments, Medicare contractors and fiscal intermediaries, private insurance companies, universities, banks, and drug manufacturers.

In addition, HHS is requiring all of its operating divisions to conduct thorough testing and independent verification and validation of its renovated systems. We also know there is a possibility that, try as we might, some systems may not be fully compliant in time. Consequently, all of our Operating Divisions have submitted initial business continuity and contingency plans to the Department. These plans will be finalized and tested throughout 1999 to provide us with the operational policies needed to permit business continuity in the event of system failure.


The Division of Payment Management (DPM), of the Program Support Center (PSC), operates the Payment Management System (PMS) which provides centralized electronic funding and cash management service to all organizations receiving HHS grants. Besides making automated payments, DPM monitors funds in the hands of recipients, provides debt management services such as debt collection and serves as a customer service intermediary between grant recipients and grant awarding agencies.

The Payment Management System (PMS) is a historically sound and successful system that provides grant payment services which include the expeditious flow of cash and corresponding disbursement data between awarding agencies and grant recipients. HHS has over 30 years experience in paying grants on a centralized/consolidated basis and in developing and maintaining systems to support this function. In the 1960s NIH centralized its payments for all of its grant. In 1975 the operation was transferred to the Office of the Secretary and began paying grants for all the components of HHS, and in the 1989 HHS began paying grants for other Federal agencies. This operation has proven extremely reliable, efficient and cost effective, realizing significant savings due to economies of scale. Indeed, it was down only one half day in recent history due to a blizzard during 1996.

HHS is now a recognized leader in the providing funds to recipients of federal grants on a just-in-time basis. The PMS supports organizations funded by ten other federal agencies and 42 different subagencies. In FY 1998 the system made 260,000 payments totaling $165 billion to 20,000 grantees. The PMS can receive automated or manual payment requests, edit them for accuracy and content, batch them for forwarding to the Federal Reserve Bank for payment, and record the transaction to the appropriate general ledger accounts.

The current Payment Management System was implemented in 1984. Major enhancements have been implemented, such as providing the capability for grantees to request funds and obtain information about their account balances electronically via their PC, and allowing the grantees to report expenditures electronically, thereby reducing the administrative burden on the grantees. Being committed to good business practices and to improving and reengineering our systems to provide better customer service, in 1994 we initiated a business review of the PMS Legacy system resulting in a recommendation for a major reengineering effort to modernize the PMS. This system development effort, the fourth major PMS redesign in 30 years, was identified as mission critical for Y2K compliance purposes.

The actual programming of the re-engineered PMS began in January of 1998, with a planned operational date of December 1998. As work progressed, DPM management became concerned about potential slippage in the schedule. Therefore, in order to ensure Y2K compliance, we began to remediate the Legacy system code of the existing PMS. We, therefore, proceeded on a parallel track, remediating the legacy code while continuing to develop the new PMS.


My office in conjunction with PSC initiated expedited Y2K compliance assessment activity to review PMS alternatives against the government-wide March 31 Y2K compliance deadlines imposed by OMB. To accomplish this, we sought expert outside advice to assess the risk and schedule for completing development of the new PMS versus testing and implementing the legacy remediated code.

The PMS is undergoing a major re-engineering; major development deliveries have been completed; and testing and Y2K certification activities are still pending. The Re-engineered PMS introduces additional functionality not available with the Legacy PMS, in particular a Web-based interface and improved tracking and reporting features. The Legacy PMS has been Y2K renovated, but has not yet been validated or IV&V certified.

Currently, based on the findings of an independent study neither the Legacy nor the Re-engineered PMS can be certified as Y2K compliant by March 31, 1999. Our lowest risk alternative is recommended as priority testing and implementation of the remediated Legacy system. Our secondary initiative will be to continue development of the new generation PMS with the goal of its implementation prior to January 1, 2000. This strategy is now being implemented by the PSC. This decision has the full backing of the PSC leadership, me, Deputy Secretary Kevin Thurm, and Secretary Donna Shalala.

We will report back to the Committee monthly on the status of our PMS Y2K testing and IV&V certification efforts. It is our expectation that we will have the Legacy system validated and implemented by June 1999. We would further hope to have a compliant version of the newly developed PMS prior to year's end.

This Department believes we have thoroughly analyzed and evaluated the options for Y2K compliance of PMS, and we have chosen the lowest risk alternative, a remediated Legacy system that will yield rapid PMS Y2K compliance.


The PSC has also developed a business continuity and contingency plan for the critical processes of PMS. This plan documents action items required should there be a Y2K problem and provides for testing of the contingency actions. This document will be shared with our federal customers. We have been using the PSC quarterly technical bulletin (Quickdraw) to keep our 20,000 recipients informed on Y2K issues and are fully prepared to make payments to our recipients on time when the year 2000 arrives.

Although we are confident that our efforts to ensure that PMS is Y2K compliant and that transactions across the end-to-end business process will be successfully executed at the century roll-over, we have also developed plans to ensure business continuity in the event of an unforeseen system failure. The end-to-end process includes a number of critical resources in addition to the Payment Management System. The other key components include: the systems at the grant-awarding agencies which transmit data on new awards or modifications to awards that are the input to PMS; the NIH/CIT Data Center on which the PMS software runs; and the Federal Reserve systems that provide for payments into the commercial banking systems.

The Business Continuity Plan developed by the PSC's Financial Management Service (PSC/FMS) provides for a back-up process in the event of a failure in any of these critical resources. Should the granting agencies' input systems be affected, or if the agencies are unable to transmit electronically, PSC/FMS will receive data on paper forms received via fax (if operational) or mail or courier service. Normal in-transit authorization procedures would then be followed. Grant recipients may also request payments using phone, fax, or courier. Data will be maintained by PSC/FMS on a backup system using stand-alone compliant PC's. Should a problem occur with the Data Center, an alternative back-up processing site would be available through the contingency plan for NIH/CIT. If a problem occurs in the transmission of transactions to the Federal Reserve, PSC/FMS will take advantage of redundancy in the processing path for PMS transactions. Alternative Federal Reserve processing locations have been established, and the contingency procedures as established by those organizations will be followed to ensure that transactions can be completed. Finally, in the event that a Y2K problem prevents PSC/FMS staff to gain access to their workplace to conduct business, plans and procedures have been developed for staff to be able to continue to work from home or from an alternate site.

In preparation for operation at the century roll-over, PSC/FMS, as part of an overall HHS-wide effort, is also developing a Day One strategy. The organization will have key process and systems staff on site on the week preceding and following January 1 to ensure systems and processes are functioning properly, and to expedite the implementation of any needed business continuity measures or system contingency plans.


HHS still faces substantial challenges in its Year 2000 efforts. However, let me assure you, on behalf of Secretary Shalala and Deputy Secretary Kevin Thurm, that we will continue to vigorously pursue Year 2000 remediation as our most important initiative. The Department of Health and Human Services intends to meet its responsibility to insure that our Payment Management System which now serves some 20,000 grantees in a number of Federal agencies is Year 2000 compliant. There will be no cash flow problems for our customers due to Y2K problems. Our customers will be paid in full and on time.

We recognize our obligation to the American people to assure that HHS's programs function properly now and in the next millennium.

I thank the Committee for its interest and oversight on this issue, and I would be happy to answer any questions you may have.

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