BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON EDUCATION AND

THE WORKFORCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

HEARING HELD IN WASHINGTON, DC, SEPTEMBER 17, 1998

Printed for the use of the Committee on Education

and the Workforce

TABLE OF CONTENTS *

OPENING STATEMENT, CHAIRMAN PETER HOEKSTRA, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES *

OPENING STATEMENT, MINORITY RANKING MEMBER, PATSY T. MINK, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES *

TESTIMONY OF MARSHALL SMITH, ACTING DEPUTY SECRETARY, U.S. DEPARTMENT OF EDUCATION *

TESTIMONY OF BRUCE WEBSTER, SENIOR TECHNICAL ADVISOR, OBJECT SYSTEMS GROUP *

TESTIMONY OF JOEL WILLEMSSEN, DIRECTOR, INFORMATION RESOURCES MANAGEMENT, ACCOUNTING AND INFORMATION MANAGEMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE *

TESTIMONY OF KARL ROSS, SENIOR VICE PRESIDENT, MANAGEMENT INFORMATION SYSTEMS, PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY *

TESTIMONY OF MONICA PILKEY, DIRECTOR OF TELECOMMUNICATIONS AND SPECIAL PROJECTS, AMERICAN ASSOCIATION OF COMMUNITY COLLEGES *

TESTIMONY OF JAMES MCMULLEN, DEPUTY ASSISTANT SECRETARY FOR ADMINISTRATION AND MANAGEMENT, U.S. DEPARTMENT OF LABOR *

TESTIMONY OF JOEL WILLEMSSEN, DIRECTOR, INFORMATION RESOURCES MANAGEMENT, ACCOUNTING AND INFORMATION MANAGEMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE *

TESTIMONY OF PATRICIA A. DALTON, DEPUTY INSPECTOR GENERAL, DEPARTMENT OF LABOR *

APPENDIX A -- WRITTEN OPENING STATEMENT, CHAIRMAN PETER HOEKSTRA, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES *

APPENDIX B -- WRITTEN OPENING STATEMENT, MINORITY RANKING MEMBER, PATSY T. MINK, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES *

THE YEAR 2000 COMPUTER PROBLEM BY

THE DEPARTMENT OF EDUCATION AND

THE DEPARTMENT OF LABOR

Thursday, September 17, 1998

________________________________________________________________________

The subcommittee met, pursuant to notice, at 10:03 a.m., in Room 2175, Rayburn House Office Building, Hon. Peter Hoekstra [chairman of the subcommittee] presiding.

Present: Representatives Hoekstra, Norwood, Schaffer, Mink, and Kind.

Staff Present: Deborah Samantar, Office Manager; Rob Borden, Professional Staff; Lauren Fuller, Professional Staff; Ashley Rehr, Professional Staff; Peter Warren, Professional Staff; Jason Ayeroff, Staff Assistant; Patrick Lyden, Staff Assistant; Kevin Talley, Staff Director; Mark Rodgers, Workforce Policy Coordinator; Jeff Andrade, Professional Staff; Cheryl Johnson, Legislative Associate/Education, and Peter Rutledge, Senior Legislative Associate/Labor

Chairman Hoekstra. [presiding] The subcommittee will come to order. Only about 470 days remain until January 1, 2000. Even the Federal Government, with all of its power, cannot postpone the arrival of the new millennium, perhaps as much as we would like to sometimes. So government agencies here in Washington must meet the challenge of the Year 2000 computer problem without recourse to alternatives, excuses, or deadline extensions. January 1, 2000 is going to come and we can't control when it does.

This morning the Subcommittee on Oversight and Investigations will receive testimony on the Year 2000 computer problem, or opportunity, as it affects the Departments of Education and Labor. The stakes are high. Tens of millions of Americans rely on programs operated by these agencies. The Education Department disburses student loans and grants to millions of college students each year. If students fail to receive financial assistance checks on time, most of them will be unable to register for classes.

The Department's computer systems track more loans than any bank in America, more than $150 billion in outstanding loans owed by about 93 million students. That's quite a mailing list. But the Department's pace on Year 2000 lags far behind major banks. The Labor Department operates programs that provide income security to millions of Americans. If these programs fail to process post-1999 dates, individuals and families depending on them will encounter sudden and perhaps unexpected income shortfalls.

This hearing is one of dozens that this Congress has held on the Year 2000 problems. Representative Steve Horn has been particularly active in calling attention to this issue. Last week, Congressman Horn released his quarterly report on the status of Federal agencies' Year 2000 progress.

The Federal Government received an overall grade of D. The Labor Department received a D. The Education Department received an F. Based on current progress, the report card projects that the Labor Department will not be fully Year 2000 compliant until 2001. It projects that the Education Department will not be compliant until at least 2030. Since the millennium cannot be postponed, it appears these agencies will need to quicken the pace of their efforts.

I indicated to Mr. Horn that we were having this hearing. He is fully supportive of us providing additional oversight and support to his activities. The Office of Management and Budget requires government agencies to report the progress of their Year 2000 work each quarter. I applaud this effort.

Unfortunately, these reports are sometimes subjective, vague, and perhaps even misleading. According to the General Accounting Office, the Education and Labor Departments both submitted inaccurate or misleading reports to OMB. The Education Department previously reported four systems to OMB as compliant that later turned out not to be. As a result, the Department reported more compliant systems a year ago than it does today.

The Labor Department uses a unique methodology to compute its progress. While Labor reports that 88 percent of its renovation work is completed, under the OMB method, only 52 percent are actually complete.

The Education Department identified 14 mission-critical computer systems. Of these, 11 are involved in the delivery of student financial assistance. The Department now reports only four of these systems, or 29 percent, as compliant, with the caveat that even they must undergo further testing. Six of the remaining mission-critical systems are still being tested and validated, and four, including the Pell and FFEL systems, are still being renovated, although September is the OMB deadline to finish renovation.

The Labor Department identifies 61 mission-critical systems, plus another 53 systems relating to unemployment compensation, that must interface with the States and territories. Currently, only 39 percent of Labor's critical systems are Year 2000 compliant. Most are in the testing and implementation phase, but some are still being renovated.

OMB has set a government-wide deadline of March 1999 for agencies to achieve Year 2000 compliance in all of their mission-critical systems. With regard to both Education and Labor, we must remember that many of the computer systems run by these agencies must be ready to go well before January 1, 2000. Many of the Education programs are on an academic calendar that begins in September. And some State unemployment insurance programs could fail as early as January 1, 1999.

The toughest challenges lie ahead. Experts tell us that the testing of repaired systems takes up to 50 to 70 percent of the total time spent on a typical Year 2000 preparation project. This may be more time than these agencies before us here today have left to work.

That is why this hearing is being held. We want to get a clear picture of what remains to be done by these two Departments in order for them to avoid major disruptions. It is in everyone's interest that these agencies successfully meet the challenge of the Year 2000 problem. And I would caution that this is not a problem that can be addressed in a vacuum.

I have said that many individuals rely on services from the Education and Labor Departments. At the same time, these agencies are counting on the partners with whom they exchange computerized data, State and local agencies, for instance, to work together with them to ensure that Federal programs continue to operate uninterrupted.

It is my hope that this hearing will help move this process forward by raising awareness of what remains to be done.

[The statement of Mr. Hoekstra follows:]

WRITTEN OPENING STATEMENT, CHAIRMAN PETER HOEKSTRA, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES -- SEE APPENDIX A

Chairman Hoekstra. Ms. Mink.

Mrs. Mink. Thank you, Mr. Chairman. Thank you for convening this hearing on the Departments of Education and Labor Year 2000 computer problems. For over two years, congressional committees have been holding hearings and considering legislation regarding the Year 2000 computer problem.

Most of the Federal agencies have testified before their committees of jurisdiction on this matter. However, while the Departments of Education and Labor have presented Year 2000 testimony to Appropriations Committee, this is the first appearance before this subcommittee.

It is imperative that we learn firsthand about the current level of Y2K readiness initiatives at Education and Labor Departments. To the extent that the GAO has found that significant risks remain in these agencies, particularly the Education Department, given its billion-dollar student loan program, we should be aware of these problems.

The purpose of this hearing is not to criticize or place blame, but rather to take necessary steps to mitigate the risks of major disruptions. None of us wish to see student loans, grants to educate children, or unemployment insurance payments delayed in any way.

I look forward to the testimony from today's witnesses. Thank you, Mr. Chairman.

WRITTEN OPENING STATEMENT, MINORITY RANKING MEMBER, PATSY T. MINK, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES -- SEE APPENDIX B

Chairman Hoekstra. Let me introduce the first panel. We have two panels today. The first is going to talk about the Department of Education; the second will focus on the Department of Labor.

On the first panel, we will hear from Mr. Marshall Smith, who is the Deputy Secretary of the U.S. Department of Education. Good morning. We will hear from Mr. Bruce Webster, who is a technical expert on the Year 2000 problem, and is Chair of the Washington, D.C. Year 2000 group. Good morning, Mr. Webster.

We are going to hear from Mr. Willemssen, who is the Director of Information Resources Management in the Accounting and Information Division of the U.S. General Accounting Office. And I believe with all the hearings and talking with Mr. Horn, perhaps he is one of the busier people in GAO right now. So, thank you for being here.

Our next witness will be Mr. Karl Ross, who is a Senior Vice President for Management Information Systems at the Pennsylvania Higher Education Assistance Agency, and co-chair of the Federal Family Education Loan Year 2000 working group. Good morning.

And we have Ms. Pilkey, who is the Director of Telecommunications for the American Association of Community Colleges.

Thank you all for being here. I missed one little piece of business. Under Rule 12(b) of the committee rules, opening statements at the hearings are limited to the chairman and the ranking minority member. This will allow us to hear from our witnesses sooner and help members keep to their schedules. If other members have statements, they may be included in the hearing record. Without objection, all members' statement will be inserted in the hearing record.

Let's get back to the business at hand. Let me remind the witnesses that under our committee rules, they must limit their oral statements to five minutes, but their entire statement will appear in the record. We will also allow the entire panel to testify before questioning the witnesses.

And before receiving your testimony, we will ask each of you to take an oath. You should be aware that it is illegal to make a false statement while under oath. Will you please stand and raise your right hands.

[Witnesses sworn.]

Chairman Hoekstra. Let the record reflect that each of the witnesses has answered in the affirmative. Mr. Smith, we will begin with you.

Mr. Smith. Thank you, Mr. Chairman and Mrs. Mink. I would like to submit longer testimony for the record and read a short statement.

Chairman Hoekstra. Right, thank you.

Mr. Smith. Thank you for this opportunity to discuss the Department of Education's efforts to address the Year 2000 problem. I want to begin by emphasizing that we take very seriously this problem and the disruption it could create for the Department, for our many partners, and more importantly, for the millions of students throughout our educational system.

We are well aware of the poor grade the Department's Year 2000 efforts have received from Congressman Horn's subcommittee. While we understand the subcommittee's grade, it is important to note that we have made significant progress over the past year and during the past few months.

This past quarter, we fully implemented four of our mission-critical systems. I would like you to turn to the chart, because I think it is useful to take a look at. It is a convenient device. The ones in the chart that are fully implemented are the ones that are in blue.

Chairman Hoekstra. Mr. Smith, can you hold just a minute so we can get the chart.

Mr. Smith. Sure.

Chairman Hoekstra. Do you have the chart Ms. Mink?

Mr. Smith. It should be at the back, Mr. Chairman, of the original longer testimony.

Chairman Hoekstra. She's got it. All right, thank you.

Mr. Smith. Okay. So that the fully implemented systems now are the ones where blue covers the entire space, and the dates at the top are when the other systems will be implemented. So by the end of this month, the fifth system, it says 9/98, the Impact Aid System, will be implemented and we will have completed code renovation for all but two systems.

By the time of our next report to OMB and to Mr. Horn in November, we will have nine of the 14 systems, 64 percent, fully validated and implemented. We expect to complete validation and implementation for 13 of the 14 mission-critical systems by January 1999, ahead of the March 1999 OMB milestone, and allowing a full year to ensure that all renovated systems are running smoothly prior to Year 2000.

The last critical system to be completed will be the Federal Family Education Loan, the FFEL system, which remains in the schedule we established for it last February. The FFEL system will be validated and implemented by March 8, 1999.

We also have made good progress on ensuring Year 2000 compliance for our many non-critical systems. By the end of this month, we will have fully implemented the Year 2000 compliant versions of 162 of our 167 non-critical systems. In addition, we have developed a detailed inventory of equipment with imbedded technology, primarily the chips in personal computers and other office equipment, and are renovating or replacing this equipment wherever necessary. For example, we are replacing about half of the Department's PC's because they are not Year 2000 compliant.

From the beginning, I have been committed to extensive validation testing of all systems, even those originally compliant. Our validation strategy led to the discovery that four mission-critical systems that had originally been certified compliant by their developers, in fact, contained errors that would have stopped production on January 1, 2000.

The four systems on the left of the chart were all certified in writing as compliant by their developers. We subjected them to extensive validation and testing and we discovered, in fact, that there were errors in three of the systems. There were fatal errors in one of the systems; there were just nuisance errors in the others. And we have subjected these systems to the same kind of intensive validation and effort that we have subjected the rest.

We have moved quickly to renovate and revalidate these four systems. This process involves contractor certification of the renovated systems that are Year 2000 compliant, independent verification and validation by Intermetrics and Booz-Allen & Hamilton, and oversight by the Inspector General and the General Accounting Office.

We will also revalidate all systems that require annual functional changes after such changes are made, although we are taking great pains to minimize such changes while we and our partners work to ensure Year 2000 compliance.

Testing separate systems, however, is really just the first step. Once we know that our individual systems are Year 2000 compliant, we follow up with testing across systems. We are negotiating testing plans with various Federal partners to provide matching data for student aid applicants. For example, next week we will begin testing Year 2000 compliant data formats with the SSA.

In addition, we will make every effort to ensure that our thousands of partners in the student aid community are prepared for Year 2000. Fortunately, many of these partners use financial aid software provided by the Department, software that is designed to be Year 2000 compliant and is undergoing final validation.

There are about 140 large institutions, however, which use their own mainframe systems to process student financial aid information. And there are others within their own systems who will be working closely with those institutions to make sure their systems can talk to ours before and after January 1, 2000. We are also holding discussions with guarantee agencies about Year 2000 testing of the National Student Loan Data System.

Early in 1999, the Department will conduct intersystem testing of mission-critical business processes with our external partners. Between April and September 1999, the Department will make available additional testing opportunities, windows, in effect, for external partners that complete work on their own systems renovations.

We are absolutely committed to ensuring that all business processes will be operating for all partners for the Year 2000. The Department is developing contingency plans for all systems as a precaution against system failures that may occur despite our best efforts. Preliminary plans for individual systems are in place and we recently launched a major effort in the student aid area.

We have created seven Department-wide Student Aid Contingency Planning Teams focusing on the core business processes that will develop alternative methods of delivering post-secondary student aid in the event of system failure. We expect these teams will closely follow the Year 2000 business continuity planning guidance developed by the General Accounting Office. Our goal is to have a final contingency plan in place for every critical and non-critical business process by March 1999.

The Department has worked hard to raise awareness of Year 2000 issues among its many partners, including 6,000 post-secondary institutions and 4,800 lenders that provide student loans, 15,000 LEA's and State education agencies. Despite these efforts, our surveys show many of our partners have a long way to go.

Over the next year, we will continue to increase efforts to raise awareness, provide guidance, and fully develop alternative methods for maintaining services for those institutions and organizations that fail to achieve Year 2000 compliance in a timely fashion. We are committed to finding alternative ways to delivering student aid, delivering resources to them that we are committed to deliver.

Much work remains, but I believe the Department is squarely on track. We are executing a comprehensive and very conservative plan for ensuring that our systems are Year 2000 compliant within the milestones established by OMB. But we are developing plans on the outside chance that something goes wrong despite our best efforts, and we are working to make sure our partners and customers are as prepared as we are for the arrival of the next century.

Thank you, and I will be happy to answer any questions that you have.

[The statement of Mr. Smith follows:]

WRITTEN TESTIMONY OF MARSHALL SMITH, ACTING DEPUTY SECRETARY, U.S. DEPARTMENT OF EDUCATION -- SEE APPENDIX C

Chairman Hoekstra. Thank you. Mr. Webster.

Mr. Webster. Mr. Chairman, Ms. Mink, it's an honor to appear before the subcommittee today representing not just myself, but the 1,500 members of the Washington, D.C. Year 2000 Group.

Let me start today with a parable of sorts. A man spotted something valuable over the edge of a bridge in the deep ravine below. So he carefully estimated the depth of the ravine at that point, subtracted his own height, and purchased bungee cords of that length. He carefully tied them to the side of the bridge and to his ankles, then leapt off. He smashed fatally into the floor of the ravine, his descent barely checked by the long, elastic cords.

The story may appear silly, since only a fool would bungee jump with cords that reached almost to the ground. Bungee cords stretch well beyond their measured length, and a bungee jumper would plan accordingly. Indeed, one would wish to err on the side of safety, given the possible consequences.

The history of information technology projects is a history of missed deadlines and overrun budgets. It is not that we don't know how to make decent estimates or to track progress reliably. The concepts, books, techniques, and tools exist to help us. But far too often, those responsible lack the training, skill, intent, or will to employ them. They are often overly optimistic on how quickly work will get done or how well things will go. And they often face unrealistic deadlines mandated from above.

All these factors affect efforts to deal with the Year 2000 problem, which has additional complications of its own. First, as noted, the deadline in this case really is fixed. It can't be slipped, postponed, or cancelled. It just won't budge.

Second, a Y2K repair effort aims to keep existing systems functioning. In other words, if we don't get it done, things that now work won't. This dramatically raises the cost of failure. To use a recent government example, the Internal Revenue Service's 11-year IT modernization effort failed, but the IRS kept right on functioning. However, if the IRS's Year 2000 repair effort were to fall significantly short, the IRS would have great trouble doing its job.

Third--and Mr. Willemssen may poke me for saying this--the attempt to distinguish between mission-critical and non-critical systems is often arbitrary and sometimes misleading. The criticality of a given system is a function of time. I can go longer without food than I can without water, and longer without water than I can without air. But if all I worry about is air and water, I will eventually starve to death.

In much the same way, systems designated non-critical can still impact an organization adversely if left unrepaired. The only truly non-critical system is the one you can live without.

Fourth, Y2K remediation involves simultaneous changes to a large number of interacting systems which, having been through Y2K repairs, must then be reintegrated so that they all function together again.

It is as if for some reason we were compelled within a short period of time to change all our electrical wiring, extension cords, and appliances to use four-prong electrical outlets and then get everything working again.

Finally, it requires that these modified systems be tested to see if they will work correctly under Y2K circumstances. This testing is not as easy or straightforward as it might seem. It can be difficult to set up a proper environment for time-shifted testing, that is, testing as if it were in the Year 2000 and beyond.

You just don't go into a major production mainframe and play around with the internal clock. You need to ensure that current systems continue to function properly and are not impacted by Y2K testing. Put another way, you don't play around with the hydraulics of a Boeing 747 while it's in flight with a load of passengers.

Some organizations have solved this problem by setting up test labs with separate computer systems up to and including mainframes. But many are relying on using existing hardware during off-hours and weekends, a dubious proposition. Add to that the task of producing time-shifted test data and results, and you have a serious challenge.

Let me stress that Y2K testing is essential. Some organizations, because of these challenges and shortage of time and resources, plan little or no real verification. They feel that the Y2K date change itself will provide all the testing required and that any uncaught defects that show up will be corrected then.

To use the earlier analogy, this is a bit like turning the power off, changing all the wiring, outlets, cords, and appliances, plugging everything in and then turning the power back on, at which point sparks fly, wires fuse, motors burn out, and fires start.

Virtually every Y2K effort to date has taken longer and cost more than estimated. In particular, the latter phases of a Y2K remediation project--testing, integration, and redeployment--usually account for as much or more time and effort as the earlier phases, inventory assessment and actual repair work.

In most cases, testing alone has taken from 40 to 70 percent of the time required. Because of these factors, any Y2K remediation efforts should carefully reexamine its plan for inaccurate or overly optimistic assumptions and deadlines. Special attention should be placed on time and resources allocated to testing and integration. Above all, absolute honesty must be the rule. Like the ravine floor, the reality of Y2K is certain, solid, and unforgiving.

I would be happy to answer any questions that you or the members of the subcommittee might have.

[The statement of Mr. Webster follows:]

WRITTEN TESTIMONY OF BRUCE WEBSTER, SENIOR TECHNICAL ADVISOR, OBJECT SYSTEMS GROUP -- SEE APPENDIX D

Chairman Hoekstra. Thank you. I have one quick question for Mr. Smith. On your chart where you talk about the testing, where is that on the chart? Does that happen after implementation or does it happen during the validation phase?

Mr. Smith. I was using testing and validation interchangeably there. There is also testing, of course, in the beginning as assessment, but I was talking about the validation.

Chairman Hoekstra. Thank you. Mr. Willemssen.

Mr. Willemssen. Thank you, Mr. Chairman, ranking member Mink. Thank you for inviting us to testify today on the Department of Education's Year 2000 program. As requested, I am going to briefly summarize our statement.

Overall, Education faces major risks that Year 2000 failures could severely disrupt the student financial aid delivery process, including delaying disbursements and application processing. Despite these risks, the Department was very slow in implementing a comprehensive Year 2000 program. Basic awareness and assessment tasks were not completed until recently.

One of the key factors contributing to this delay was the instability of the Department's program manager position, which suffered continuous turnover. Five different individuals have held this position in a little over a three-year period. With its slow start, Education has been in a position of playing catch up.

The Department has now reported to OMB that it has 145 mission-critical systems, of which 11 are student financial aid systems. According to the Department, four of those systems are now considered Year 2000 compliant, one is in the process of being implemented, and the remaining nine are either being validated or renovated.

Despite its recent progress, the Department must still mitigate some critical risks. These include the need for adequate testing, the renovation and testing of data exchanges and the need to put together adequate business continuity and contingency plans.

First, turning to the testing area. Complete and thorough testing, as you noted earlier, is absolutely critical here. Unfortunately, that testing is often very time-consuming for Y2K projects. The experience to date is showing that in many cases, more than 50 percent of a total project's time is devoted to test activities.

Because of Education's late start and the recent compression of its schedule to meet OMB's deadlines, the time available for some key testing activities is fairly limited, and Department officials have acknowledged that. In fact, the schedule for 7 of the 14 mission-critical systems has recently been extended to allow for more time for testing.

Regarding data exchanges, Education's student financial aid environment involves a large number of external organizations. To address its data exchanges with schools, lenders, and guarantee agencies, Education has dictated how the data that these entities provide to the Department should be formatted. And Education has followed up on this approach with its data exchange partners by developing memos of understanding with each guarantee agency and Federal agency and conducting some outreach activities on Year 2000 awareness with schools.

The Department has also recently conducted a survey of the Year 2000 readiness of post-secondary schools, and the preliminary results of that survey show that up to one-third of the schools do not have a Year 2000 compliance plan in place.

Given all these challenges that the Department faces, it will be very difficult for Education to enter the new century without some problems. Because of that, it is critical to have business continuity and contingency plans in place. Education has initiated some of these contingency planning activities, and they've also recently appointed a senior executive to manage the development and testing of contingency plans for student financial aid operations. We now understand the Department is planning to complete these plans by March 1999.

That concludes a summary of my statement. I would be pleased to address any questions you might have.

[The statement of Mr. Willemssen follows:]

WRITTEN TESTIMONY OF JOEL WILLEMSSEN, DIRECTOR, INFORMATION RESOURCES MANAGEMENT, ACCOUNTING AND INFORMATION MANAGEMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE -- SEE APPENDIX E

Chairman Hoekstra. Thank you. Mr. Ross.

Mr. Ross. Mr. Chairman and members of the subcommittee, thank you very much for the opportunity to address you on a subject that is so important to the entire higher education community. I wanted to echo the chairman's comments about the significance of this problem, that regardless of the reason, the loss of some or all of the Department of Education's systems could be devastating to students and financial institutions.

At a minimum, any interruption in service would cause the education community to spend huge amounts of resources to address immediate concerns and perform manual processing, funds and focus that we would all rather see spent on educating students.

My purpose in being here today is to discuss the avoidance of these worst-case scenarios in the Federal Family Education Loan Program, the FFELP program.

In order to meet these challenges laid out by the Year 2000 issues, I am suggesting three recommendations for the Department. First, I think the Department needs to be more diligent in enforcing its due dates. Second, I would like to see the Department increase its outreach efforts. And third, I would like to see the Year 2000 be a part of all their decision-making processes. This is an issue, as we have heard, that can't be avoided, and this is an issue that must be a part of the decision-making process.

I am also recommending that oversight monitoring of the Department's efforts focus on three areas, reviewing the independent validation reports on vendor certifications, as we heard from Mr. Smith; putting all the policy changes in a Year 2000 context; and working with the Department on contingency plans.

I did want to spend a moment on introducing the organization I work for and a brief description of our efforts. The Pennsylvania Higher Education Assistance Agency, PHEAA, interacts with 3.8 million customers each year, including 150,000 students in need who receive grant awards, 500,000 students who need loans, and several million borrowers who are working hard to keep their loans manageable and current.

PHEAA has direct and indirect fiduciary responsibility for over $30 billion in assets. In all of these functions, we have significant interaction with the Department. Recognizing the importance of this potential, PHEAA appointed a Year 2000 technical coordinator two years ago. Following the standard 2000 project plan, we immediately started an awareness campaign and finished our inventory and assessment step in the summer of 1997 and have been on schedule ever since.

We know that preparing our own systems will not guarantee success. We are in close contact with customers and vendors. A sample of some of the information that we sent to our customers is attached to the testimony. We are also anxiously awaiting the joint contingency planning and joint testing sessions that the Department is going to hold.

In addition to serving as CIO for PHEAA, I also co-chair the FFELP Year 2000 Work Group. This work group is composed of representatives of agencies and member organizations in the FFELP community. The purpose of the work group is to assist in ensuring that the essential public purpose of the FFEL program will continue unabated into the next millennium.

To achieve this goal, it is the intent of this work group effort to establish and maintain open lines of communication between the Department of Education and FFELP participants.

Simply describing causes and consequences of the Year 2000 problem is not what this hearing is about. As stated by Congresswoman Mink, the question really is what can we do to minimize risks.

First, the Department must enforce their due dates. There is no margin for error on these dates. As an example, the latest quarterly report did indicate substantial progress; but just three months ago, the OMB quarterly report stated that nine systems would be validated by August, and the actual number was four.

The Office of Management and Budget itself has noted that ``the rate of repair on noncompliant Department systems'' is cause for concern. They also note, and it is certainly applicable to the Department, that a significant number of these plans show agencies completing work on a large number of systems in the month just before their target dates.

This is troubling, as information technology projects in general are prone to unanticipated complications and delays. In fact, most estimates that I have seen have put the percent of information technology projects completed on time at far less than 50 percent.

Given the thousands of partners and interactions that the Department has with the FFELP community and the other educational institutions, it is essential that we go hand in hand into the next century. No one is going to survive if everyone doesn't survive. The Department must focus more on these outreach efforts to minimize the risk of data exchange breakdowns with its partners.

Based on the public pronouncements from the Department, one could get the impression the Department has a very business-as-usual approach. This is not business as usual, even in the best of circumstances, and I think everyone agrees that the Department is not in the best of circumstances. Policy decisions and resource priorities must be arranged so that they enhance and not hamper efforts to achieve Year 2000 compliance.

There are also three items that I would hope the subcommittee is currently looking into. First, the reports that I mentioned before. These reports should provide significant detail on not only the renovation effort itself, but also the code testing and intersystem testing.

We have to put changes in a Year 2000 context. If there is a change, does it have a Year 2000 effect? I am not a policy expert and I know that policy issues are extremely complex. But I can only tell you that if someone does decide on a policy change that affects institutions of higher education and the Department, this is going to put Year 2000 at risk.

In conclusion, with just over five quarters remaining until the Year 2000, there is definitely cause for concern over whether the Department and its partners will be ready in time. Many items are outstanding and the clock continues an inexorable ticking towards the Year 2000.

Thank you for providing me with this opportunity, and I look forward to answering any questions.

[The statement of Mr. Ross follows:]

WRITTEN TESTIMONY OF KARL ROSS, SENIOR VICE PRESIDENT, MANAGEMENT INFORMATION SYSTEMS, PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY -- SEE APPENDIX F

Chairman Hoekstra. Thank you. Ms. Pilkey.

Ms. Pilkey. Good morning. I am pleased to be here today representing the American Association of Community Colleges. AACC represents more than 1,100 public and private degree-granting, regionally accredited, two-year institutions of post-secondary education. Community colleges serve over 10 million students, almost half of all undergraduates attending higher education.

In June of 1998, the U.S. Department of Education's Office of Vocational and Adult Education and the U.S. Department of Labor approached the American Association of Community Colleges to discuss the Y2K issue. The key emphasis of the discussions was the level of Y2K technical training available at community colleges, as well as community college involvement and Y2K dissemination within local communities. In addition, questions arose regarding Year 2000 preparedness at community college institutions.

As a result of the meetings with the Departments, AACC conducted the Year 2000 Computer Compliance Survey to assess several key Year 2000 issues as they related to AACC member colleges. The good news is that, according to our survey, most community colleges are confident that their institutions will be prepared for the new millennium's computer challenges.

Four hundred and twenty of the approximately 1,100 surveyed colleges responded, resulting in a 37.5 percent response rate. While the Y2K survey indicated that 18.9 percent of the respondent colleges already have achieved compliance, the majority of the remaining colleges believe they will become compliant before January 2000.

According to the results, 98.1 percent of the responding colleges reported that they were confident that their most mission-critical systems would be ready for the Year 2000.

In a follow-up interview, Community College of Rhode Island officials said they expected to be compliant by next summer. According to Albert Sevigny, controller at Rhode Island, his college required only one more modification to achieve Year 2000 compliance.

In some cases, State governments have led the Y2K effort. For example, the North Carolina legislature mandated in December 1997 that colleges start researching solutions to the Year 2000 problems they might encounter, this according to Dickie Perry, director of information technology at Mayland Community College in Avery County, North Carolina. Teams at Maryland have actually been working on the Year 2000 problem since September, according to Perry.

When asked if colleges had a written plan to achieve compliance, 59.5 percent of the responding colleges indicated they have developed Y2K plans. Telephone interviews indicated that many colleges believe they don't need a written plan for a variety of reasons.

For instance, at Maricopa Community College District in Arizona, one of the nation's largest community college districts, one single written plan has not been developed. Instead, the college has announced general steps for compliance and developed many detailed checklists that are being tracked for progress. According to Jim Devere, Y2K special project manager at Maricopa Community College District, developing one single written plan would have wasted a lot of time and money.

Other colleges without written plans indicate that their computers were either compliant upon purchase or new enough to make the problem less burdensome. Dale Kesner, director of information technology at Cossatot Technical College in southwest Arkansas, says that the newer, user-friendly computers with up-to-date software at his institution are easily adjusted.

Another solution for institutions like Mississippi Gulf Coast Community College is to simply replace existing outdated, noncompliant computers, especially those in mission-critical areas. Still other colleges have reported that their applications and their networks are centrally maintained at the State level, thus making a written institutional plan for compliance unnecessary.

The survey also asked several questions about how community colleges were helping their communities deal with the Y2K issue. According to our survey, 35.4 percent of the responding colleges have received requests from community organizations, businesses, and industry, asking for training or assistance in solving the Y2K problem.

Community colleges reported requests for information and assistance in general awareness and information, elevator compliance, mechanical devices, personal basic computer skills, file conversion, Novell training. They have requested student interns and project management. Of these requests, survey respondents indicated that they have been able to accommodate 85 percent of those requests.

Some of the organizations that have asked for help include Rotary Clubs, Kiwanis Clubs, churches, local schools, and businesses.

John A. Logan College has done several workshops to help raise awareness of the issue, and have brought together folks from local banks, local real estate companies, architects, housing authority of the City of Marion, Illinois. And the organizations were able to get together and talk about their frustrations and possible solutions to local Y2K problems.

AACC continues to follow the Y2K issue and the efforts of our community colleges to address the problem at their institutions and in their communities. In addition to a series of articles in our biweekly newspaper, the Community College Times, AACC is working with the U.S. Department of Education to promote a satellite teleconference on awareness of the topic. We are also placing the summary results of our survey and a list of Y2K information resources on our Web site.

Thank you for this opportunity to share with you how community colleges are dealing with the Y2K issue and how they are helping their communities deal with the issue.

[The statement of Ms. Pilkey follows:]

WRITTEN TESTIMONY OF MONICA PILKEY, DIRECTOR OF TELECOMMUNICATIONS AND SPECIAL PROJECTS, AMERICAN ASSOCIATION OF COMMUNITY COLLEGES -- SEE APPENDIX G

Chairman Hoekstra. Thank you very much to the entire panel.

How are we going to figure out exactly where we are and what we need to do? I talked to my colleague, Mr. Horn, and he says there is big trouble. You manage a portfolio of $150 billion, 93 million students, or 93 million clients, and he gives you an F. I see this chart and there are some concerns, but it kind of says that you are okay and you are on track. How do I reconcile these differences, Mr. Smith?

Mr. Smith. I think that is a good question, Mr. Chairman. We do have quibbles with Mr. Horn's evaluation processes, but that is certainly not the answer that I want or that you want.

Chairman Hoekstra. I will give you the benefit of the doubt. I will give you a C minus, all right? I am still concerned.

[Laughter.]

Mr. Smith. That's fine. If I may just respond to a couple of comments by GAO, because they are pertinent, I think, to your question and a couple of the others. I believe that we are going to be doing everything the GAO is suggesting. In fact, I invite GAO to come and do more with us all of the time, as well as Mr. Ross and the FFEL community. Those are all exactly the right things to be worried about, to enforce the dates and do the outreach and data exchanges and Year 2000 decision-making processes.

As you know, the full committee is now marking up the Higher Ed Act, or they are in conference on it. There is, in fact, a policy change in the bill, which allows the Secretary some discretion in thinking about when some of the policies might be implemented. We fought hard for that and got some support, and I believe it is now going to be in the bill. It has at least been agreed to by the staff.

Chairman Hoekstra. I don't think that's a positive move, but go on.

Mr. Smith. No, I understand, but it does respond directly to one of the comments that Mr. Ross made. That is, that we are looking at this in an overall policy environment, and we are. We are considering policy changes in the environment--

Chairman Hoekstra. Excuse me, but what it tells us is that there are policies that Congress would like to implement that can't be implemented because the Education Department has not been up to speed on this program. So that is why I am disappointed we can't put in place the policy changes. I recognize that at this point in time our number one priority does have to be getting Year 2000 compliant.

Mr. Smith. I think we need to see what the pudding looks like or tastes like at the end of the meal, because I believe that we will be ready and we will be able to implement most of those changes.

We do want the Secretary's discretion, however, not just for us, but also for the FFEL community and other partners who may or may not be ready to make changes that are required of them as well. So it is a joint effort and I think we can work together to try to make it really work in the best interests of both implementing the HEA, as well as implementing Year 2000.

To go back to your basic question, I am absolutely willing to open up the books to anything you want to look at. We now meet once a week on these issues, often more than that. We push on the IV&V contractors and on some general oversight contractors that we've got. We have been very, very rigorous about testing. I am not against testing, as you know.

This issue is absolutely critical to me. That is, the delivery of data and the delivery of resources and so on from the Department. So I think I can only assure you by giving you information and by letting your people come in and take a look at anything they'd like to take a look at, sit in on the meetings if they'd like.

Chairman Hoekstra. This is a very technical and difficult issue, so I am not sure that my people sitting there will help you get to the solution that we all want.

Just a question: As I see it, seven of these programs are going to hit a key milestone in September 1998. What is it today, the 16th, 17th?

Mr. Smith. Right.

Chairman Hoekstra. You have 13 days. Are you going to hit those?

Mr. Smith. I believe we are going to hit those.

Chairman Hoekstra. And how will I know if you do?

Mr. Smith. We will give you a report.

Chairman Hoekstra. You will give me a report? And who will verify that your report is accurate? Will somebody like Mr. Webster or Willemssen? Will you verify that they've actually been able to complete the steps and the target by October 1?

Mr. Willemssen. If you so request, Mr. Chairman, yes, we would.

Chairman Hoekstra. Okay.

Mr. Smith. We would be delighted. We are going to make these dates, give or take a day or two, but we are going to make these dates. And I would like Mr. Willemssen to come and look at them.

Chairman Hoekstra. One additional issue. We know you like testing. You know we like the FFEL program. We know you like direct lending. And we don't think you really like FFEL. If you use the 2000 process to damage the FFEL program, I would be concerned. I am very concerned that the program that the Clinton administration and the Education Department have fought against vigorously for the last five and a half years, just by coincidence, happens to be the program that is furthest behind in this schedule. And the program that the administration and this Education Department supports is the only one that appears to be coming anywhere near compliance.

Mr. Smith. May I respond, Mr. Chairman?

Chairman Hoekstra. Sure, you can. I am just telling you my observations on your chart. I am concerned if this is designed to push a political agenda, which, looking at this chart looks like it might be based on actions that have come out of the administration and the Department over the last number of years. I am very concerned and upset, and I expect this one to catch up and be as fully compliant as anything else. And for students or colleges who have chosen one program over another, to be hurt because of what this administration likes and what it does not like, is totally unacceptable.

Mr. Smith. Mr. Chairman, I believe you have made exactly the wrong inference. Let me explain.

Chairman Hoekstra. I am just looking at the facts.

Mr. Smith. Well, it is an inference from the facts.

Chairman Hoekstra. An inference from the facts. I probably failed my national testing, but that's okay.

Mr. Smith. Okay, on the facts, we actually believed that originally we had down as compliant four systems back a year ago. We believed that the direct lending systems would be compliant, because they were recently developed and we believed that they had been developed to be compliant. They turned out not to be compliant. That's why they aren't fully up to snuff now.

The FFEL system is a different system. It is actually not really the FFEL system; it has some functions having to do with FFEL, but there are other functions among the other programs that also deal with the FFEL system. But it is an old legacy system. It needs 93,000 changes in code, 93,000. So we have been diligently working through those changes systematically, testing them as we go, coming back again and fixing them again, testing as we go. This is a process that has taken a long time, no question about it.

I talked with the vice president of Raytheon who is responsible for this program just three or four weeks ago. He absolutely committed that they were on course and committed to putting the resources in that were going to make this schedule. I believe we are going to make it. It has nothing to do with any preference by any of us for either program. In fact, we have an absolute obligation that I have sworn to and every other senior officer in the Department has sworn to, to serve both programs as equally and to serve all the students that are served by those programs.

So there is nothing political about this. This is a difference in the nature of the systems, and we are working very, very hard to make the FFEL program itself work as well as it possibly can and be Year 2000 compliant by March 8, 1999.

Chairman Hoekstra. Ms. Mink.

Mrs. Mink. Thank you very much. I am very much concerned about the whole subject area. I have confidence that the Department will be able to meet the necessary date targets with reference to mission-critical systems within the Department.

My question, Mr. Smith, is that given the consumer reliance outside the Department, all of our post-secondary institutions and the students and other outside consumer participants that must rely on their ability to interconnect, my question is to what extent are the outside consumer entities such as my university, being linked into your internal corrections and compliance mechanisms, so that they will be also ready to hook onto your system and be able to feed in information and get timely reports and whatever commitments available to the students who will be reliant upon the ability of the outside agencies to connect in. Can you elaborate on that?

Mr. Smith. Right. There are a number of different components to that question, as you know. Let me just raise two or three initially.

First of all, we have been very active in discussing with the outside community, both through the different groups which represent them that are in Washington, but also reaching out to them through sets of conferences and other ways, ``Dear Colleague'' letters that go not just to the student financial aid office, but also go to other offices, whether it is the chief financial officer or others within the institutions. And we have obviously got Web sites and all that sort of stuff. So that's number one.

Number two is an awful lot of the institutions, the colleges and universities are going to be using our software. That software is designed to be compliant and it is now being rigorously tested and will be validated some time in the next couple of months.

Mrs. Mink. What concerns me is the use of the words ``a lot of.''

Mr. Smith. Right, right.

Mrs. Mink. Why not everyone?

Mr. Smith. That's right. Everyone doesn't because some of them use--there are 158 major public systems often that use old mainframe systems, and they just don't use our software. We can't require them to.

Mrs. Mink. So what happens to them? I was told about a year ago that my university--and we only have one system--is not able to participate in direct loans because the system is not compatible. I haven't checked lately to see whether it is now compatible, but what if that same situation continues to exist? How will that be corrected in time for my students and my programs and all the other applicants that feed into the Department, how will we be able to be part of the United States of America?

Mr. Smith. We have a very active testing window for every institution to be able to work with us and determine whether or not they can deliver the information.

Mrs. Mink. I know they can work with you, but what outreaches are there in existence now that brings in all of these potentially noncompliant systems to get to them, as we are now looking at your system and grading it, what have you done with respect to all of the other consumers? Have you given them their F's too so that they know they are not going to fit in? Are they aware?

Mr. Smith. We haven't gone out and graded every system. What we have tried to do is get out as much information as we possibly could and begin to develop alternative processes. There is something called third-party servicers, for example.

Mrs. Mink. Well, have you got a list to show where the alerts are? Have you put out big red flags to indicate which ones are in deep trouble, and to what extent are we, the representatives of these outside groups, capable of being informed in advance?

Mr. Smith. I think that's something we are trying to work with the organizations on. The community college organization, for example, put out a survey and has been contacting its members and letting its members know about the nature of the results of that survey so that people do understand it.

We have identified the major big systems, the 158 schools. They know that they have a problem that's different from the other folks' problem. Many of those are working hard to--

Mrs. Mink. Have you got a list of the 158 schools?

Mr. Smith. Yes, we could give you a list.

Mrs. Mink. Mr. Chairman, could we have that list in the record?

Chairman Hoekstra. If the gentleman will send us the list, we'll put that list into the record. Without objection.

Mrs. Mink. I appreciate that. Thank you.

Chairman Hoekstra. You're lucky in Hawaii.

Mrs. Mink. Why?

Chairman Hoekstra. If we crash on January 1, 2000, Mr. Kind and the institutions in Wisconsin will have a one-hour warning, and you may have about an eight or nine-hour warning over everybody else.

[Laughter.]

Mrs. Mink. Well, let me tell you, we are deeply concerned, because I am sure some of the people in the Department know that even without the Y2K problem, over the years with regard to getting student applications or whatever on time, I have to send my staff down to pick them up and Fed Ex it to my constituents and to my institution. So irrespective of all the efforts that are being made internally in the Department, my concern is have we really connected with the communities out there that may be totally unaware of this upcoming crash.

Mr. Kind. Mr. Chairman, that's why I am planning my vacation in Hawaii on January 1, 2000 in case the airlines shut down and all modes of transportation are shut down. I think I would rather be stranded on one of those islands.

Mrs. Mink. Speaking about airlines being shut down, you know now you cannot get a regular ticket, you get an electronic ticket. I said to the sales clerk, what happens if your computers crash, and they say, well, we haven't really thought about that.

[Laughter.]

So I may never get home because I have an electronic ticket. There are so many problems that one can envision; we do not take this issue lightly. While I have confidence that you have made a critical analysis of all the steps to bring the Department in line in time, my grave question is what about the others outside. Are they going to be prepared to do the same? Are they being told what you are doing so that what they are doing will match, or are we going to have a mismatch where the two roads don't connect?

Mr. Smith. Well, I think we've covered that issue. We've sent out to every one of the institutions basically a data format that's in the standardized format, and they know what system changes they have to make in order to get ready for that in order to meet the Year 2000 compliance, the four-year date and so on. So that part of it is okay.

But you are asking even a deeper question, I think. We can send that information out, we can talk to them about it, we can raise their awareness, but we can't guarantee at this point that they, in fact, will do it. What we can guarantee, though, is that we have some backup systems in order to be able to work with them, some third-party servicers, some ways of handling emergency situations which may take a little bit longer and may be a little more work. There may be work-arounds and so on. But we are absolutely committed to being able to get student aid to Hawaii, as well as to everywhere else.

Chairman Hoekstra. Mr. Norwood.

Mr. Norwood. Thank you, Mr. Chairman. Mr. Webster, do you see any relationship with organizations that have a history of management problems and their ability to make progress in becoming Year 2000 compliant?

Mr. Webster. Yes, because as mentioned in my opening statement, information technology is something that we in this country, and actually worldwide, do not do well. There are a number of issues that I won't go into great length about here, but Y2K basically magnifies them. In other words, if you have difficulties in bringing a single project in on schedule and under budget, the act of having to assess, renovate, replace, test, and then put back into implementation, virtually every system you have in your organization is complicated by two or three orders of magnitude.

It requires very careful management. It requires careful tracking. And it requires as much honesty in assessment and knowledge of where you are at as possible. This in turn, requires that the organization, whether it's governed from within or overseen from without, have a mandate for honesty and it is both safe and beneficial to come forward and say this is where we are really at.

Mr. Norwood. Well, in your experience, as we get closer to the January 1, 2000, have you noticed that there is more pressure, for example, on management to portray perhaps a rosier scenario than actually might be the case and to avoid identifying problems with unrealistic deadlines and unrealistic cost figures? Have you picked up on any of that in your experience?

Mr. Webster. Well, there is sort of a curve or a course that organizations go through. The first one is denial or complacency as far as the nature, scope, and extent of the problem. The second one is a more prolonged period of yes, we are working on it, and everything is going to be fine.

And then as you track the plan schedule versus the actual schedule, as variances occur, you raise the issues. Okay, you said you were going to be done by here; here is where you are. What is the problem.

The last phase that I tend to see in organizations is a compelled honesty, because at the end, once you start hitting testing, once you start hitting verification, once you are starting to put things back into production, unless testing has been neglected or mismanaged to a significant extent, you simply cannot hide where you are at.

Mr. Norwood. In other words, as we get closer, it becomes more and more obvious.

Mr. Webster. There is actually a classic rule in software development projects. It's the 90-90 rule, which is that the first 90 percent of a software development project takes 90 percent of the time. The last 10 percent takes 90 percent of the time. You tend to get stuck at that last 10 percent.

Mr. Norwood. I refer you to the Department of Education Year 2000 Monthly Report to the Office of Management and Budget. And inside of that report is a graph that you have before you. What is your impression of that? What do you think that graph was intended to portray?

Mr. Webster. Well, my first look is that this is intending to portray the degree of completion of these various systems, relative to the classic five phases of Year 2000 compliance. Questions arise, but again, I know nothing of these individual systems per se as far as their size, complexity, environment, lines of code and other factors that could govern the relative likelihood of success.

There are a few things that leap out at me, and it may simply be the nature of how the graph was put together. For example, the Pell Recipients Financial Management system, the second to the last on the right hand edge, has identical deadlines for completion of renovation, validation, and implementation. They all are 12/98. I don't know when this started or what the size of it is, but that, to me, says wait a second, there is a disconnection here, because that basically shows testing occurring near simultaneously with completion of renovation.

Again, with Education's Local Area Network, which is hardware checkout, you have one month of testing, one month of implementation. Again, I don't know what the scope of this project is, but to me, knowing nothing else, that would be a flag. I would zero in on that and say, okay, what is the actual scope here, what is the nature of the testing, can it really be done this quickly.

Mr. Norwood. Do you know enough about this to perhaps say that it may be a rosy scenario that we are looking at?

Mr. Webster. I do not know enough about that. The best I can tell you is that I recently completed spending a year and a half in a Fortune 50 company involved in their Year 2000 effort. This company completed the vast majority of their renovations at the start of this year. They are basically using the whole year for testing and that may slip into next year as well. The experience is that testing is very difficult, very problematic, and more subtle than you might think as far as to do an effective Year 2000 test.

Mr. Norwood. So if you took this graph and blue was at the top across the board, there is still much work left to do.

Mr. Webster. No, if they are following the standard classic five phases here, if the blue is at the top of the board, this means they can sail into Y2K with no problem. It says they've done the testing, they've done the implementation, their systems work. Now this does not begin to address contingency planning. It does not begin to address external interfaces.

And it also doesn't address dependent systems, the myriad of dependencies you have on external organizations. All you need to do is look at your books. Who do you get money from and whom do you give money? That tells you where your dependencies are and unless you are sure that all those various suppliers, organizations, partners, or whoever, are Y2K compliant, you have potential problems.

Mr. Norwood. Last question, if I may, Mr. Chairman. Does anybody believe that the Department of Education will be ready?

Mr. Webster. I have no basis on which to make that judgment.

Mr. Norwood. Do any of you know enough to make a comment?

Mr. Willemssen. It is likely there will be some problems. I am especially concerned about the complexity of the data exchange environment, because per the graph you are talking about, no matter whether all those systems are individually compliant or not, we still have to view this from an end-to-end perspective. And all of those exchanges have to be compliant.

With the thousands of exchanges we are talking about, I think it is highly unlikely to think there aren't going to be some problems. That's why it is especially imperative that contingency planning take place, and the Department is embarking on that effort.

Mr. Norwood. Mr. Chairman, are there any consequences to those who are responsible for this in the Department of Education if they are not ready?

Chairman Hoekstra. I would have to take a look at the personnel records and personal contracts of people in the Education Department, which I believe are confidential. So only Mr. Smith could tell us the potential consequences to him or other people on the Year 2000 issue as to whether the target dates on this chart are actually hit or not. And if they are not hit, what the consequences might be to them personally. I have no knowledge of that.

Mr. Norwood. I just wondered if at the end, we fail, somebody can say, oops.

Chairman Hoekstra. I would guess if we fail, you will hear more than a little oops. I am not sure what an oops from both sides of the aisle would actually sound like, but it will probably be very loud and it would not be a very positive development.

[Laughter.]

Mr. Smith. Mr. Chairman, if I may.

Chairman Hoekstra. Yes.

Mr. Smith. There is a fairly complex system of accountability here. Almost every one of these systems, with the exception of the internal LAN system in the Department, is carried out by an external contractor, by EDS, by CDSI, by Raytheon, or by a variety of things.

They clearly feel the accountability brunt, because if they fail, that's public information. You know about it; everybody knows about it. It certainly doesn't help them.

When I talk to a CEO from those companies, they understand that very, very clearly. So there is that level of accountability.

There is an internal level of accountability also that depends upon the circumstances and so on. One makes a judgment on accountability and who is responsible or what other things are responsible for changing a date.

Mr. Norwood. Who you hire is your business and it is your business to make sure they are accountable.

Mr. Smith. That's exactly right.

Mr. Norwood. We've hired you, and it is our business to make sure you are accountable.

Mr. Smith. That's fine.

Mr. Norwood. That's the difference.

Chairman Hoekstra. The gentleman's time has expired. Mr. Kind, just let me ask one question for a second. Do you have performance contracts in place for your vendors that they will be compliant or not?

Mr. Smith. They have clear expectations about the compliance. They have general contracts. In certain instances, there are performance contracts.

Chairman Hoekstra. Are there financial penalties involved?

Mr. Smith. There are. For example, on the FFEL program, there is a financial penalty for every week, or is it day? May I ask Jerry Russamano who is responsible here?

Mr. Chairman, these numbers may not be precise and we will be glad to give you the numbers. On the FFEL program, if they are a week late, penalties begin to kick in. The penalty is in the order of, we believe, $30,000 to $50,000 a day, nontrivial. And the kind of publicity that would come from that would be very bad for a company like Raytheon.

Chairman Hoekstra. My guess is the people who are ultimately held responsible are probably sitting up here, because if the students are not getting their loans, my guess is that we will get the first call.

Mr. Norwood. Mr. Chairman, why don't we have a similar contract with the Department of Education then?

Chairman Hoekstra. That we forward our phones to them?

Mr. Norwood. Well, $30,000 to $50,000 a day is a good way to go in terms of appropriated funds.

Chairman Hoekstra. Mr. Kind.

Mr. Kind. And that's why I'm very glad I am not Chair of this oversight committee at this time.

[Laughter.]

Thank you, Mr. Chairman. Mr. Chairman, I want to commend you for having this hearing today. I think this is a vitally important topic that we need to explore and continue to get updates from the various Federal agencies, not least of which are the Departments of Education and Labor.

This is timely in my regard because just a couple of weeks ago I was back in western Wisconsin and held all kinds of Y2K forums back home. We've got five state universities, seven technical school campuses, a private college, a mecca of higher education and learning in western Wisconsin. They were in attendance, hospitals, financial institutions, small and medium-sized business owners were there, big attendance. And it is a huge, huge problem in Middle America right now.

I was surprised at the level of disparity from institution to institution, where they are on it, how compliant they are, what the chances are they are going to be completely compliant. But the constant refrain I kept hearing back, especially from the small and medium-sized business owners, was this is a huge issue, how come this hasn't been in our face day after day after day. The national media should be all over this, getting the education out, getting the information, directing people where they can go for resources. And they were just flabbergasted that that wasn't happening.

Of course, we know what's been in the media for the better part of a year now, so there is no surprise that something like this hasn't received a lot of attention. But in regards to the higher educational institutions that were at the forums and I had a chance to talk to, they are all working diligently, as cost-effectively, and as quickly as possible.

Their major concern in regards to the Department and what was happening is the whole loan processing aspect of it. They are very concerned about that and that that is going to impact them most directly and most immediately with the students.

So I would be interested in hearing any comments that you have on that specific area of the Y2K problem. But also, and perhaps we can start with Mr. Smith, if you could theoretically lay out the worst case scenario that we are realistically looking at right now.

And then also--and I'm sorry if I'm asking you to repeat some of your previous testimony--I know there are contingency plans in place, but through the course of these forums that I had, and we had experts in there talking about it, they couldn't emphasize enough the absolute need to have good contingency plans in place.

We would all love to be 100 percent compliant, but the reality of that just isn't there, and that's why it's all the more important that not only are we working as expeditiously as possible to deal with this, but also realistically, for some fallback plan in case things don't materialize as quickly as we would like to see them.

So maybe we could start with Mr. Smith with that.

Mr. Smith. Mr. Kind, this touches on my personal life. I have a daughter-in-law who actually gets a loan, and she is at Stout. So she is right in your district.

Mr. Kind. It's a great institution especially for technology issues in western Wisconsin.

Mr. Smith. That's right. She's in Early Childhood. I think the absolute worst case scenario would be that we wouldn't have contingency plans. That is exactly the case that we do not want to enter into, and that is why we have very preliminary ones now. We are working very hard to get more of them now.

If we had a situation where Stout, for example, couldn't communicate with us, I believe what our contingency plans will ask or will require is that there be associated with Stout a third-party servicer, such that it could deliver that kind of information that Stout needed to deliver.

Stout would have to give it to them. It would take some manual intervention and things. It would take a change in their business process, but we would be able to deliver it. We might also be able to combine in that case--and that would depend upon Stout, we would give them some examples.

River Falls might work and Stout and River Falls might get together and work on a single system. It might not be a bad idea in theory, anyway. But the idea there would be that you can actually share, so one institution could work with another institution to share that.

On the individual basis, the actual filling out of student financial aid forms and other things where the institution is not quite as involved, we will be very aggressive in trying to make the electronic facet of the financial aid forms available to everybody and available in a way that people know that they can go to a place to actually sit down at a PC and use it if they don't have one at home themselves. That's one part of the fallback.

There are other ways of working out a fallback on the delivery that we are exploring. We need all the ideas we can get from people such as the gentlemen at this table.

Mr. Kind. Is there someone in particular who has been assigned to the contingency plan aspect of this?

Mr. Smith. Yes.

Mr. Kind. Who is that? Who can I talk to?

Mr. Smith. There is a fellow named Bob Davidson. He has worked for me for five years. Bob has been taken out of his job working in the Budget Office, where he has been running the higher education part of the Budget Office. I have asked him, and he agreed to an assignment to work for the next year and a half or so to pull together teams of people to develop contingency plans. There are seven teams that are now developed around the business processes that exist in student financial aid.

I think we are on the way. We are going to have to reach out to a lot of people, because they are going to have ideas. There are going to be individual ideas at the local level that are very important that we need to tap into and we need to obviously work with the organizations around Washington.

Mr. Kind. Thank you, Mr. Chairman, I see my time has expired.

Chairman Hoekstra. Mr. Schaffer.

Mr. Schaffer. Thank you, Mr. Chairman. I've got some questions for Mr. Smith. I was going through the testimony of Mr. Ross. I was not here when he delivered it, but I appreciate the printed version, it was very informative.

Mr. Ross claims in his prepared remarks that ``it is vital to realize that no one has successfully performed a Year 2000 project.'' Do you agree with that?

Mr. Smith. No one in the country? I am not sure.

Mr. Schaffer. How about just within your agency.

Mr. Smith. Within our agency. Well, we have not completed the Year 2000 project, which is the overall project, for sure.

Mr. Schaffer. For any of these specific programs, would you consider any of these--

Mr. Smith. I would disagree with that. I am not sure if that's what you meant.

Mr. Schaffer. Oh, I am just asking you.

Mr. Smith. In the context of what we have talked about, that is, the individual system itself, we have completed, yes, four of them now, and we will complete another one this month.

Mr. Schaffer. Let me ask about that. Looking at this blue chart, when you see that upper category, it says implementation and it is blue, which seems to suggest you can't get any better than that, you are at the top. What exactly does implementation mean?

Mr. Smith. That the system is now being used. It is in actual process, it is doing the work that it continually does. All of these systems are working all the time. Sometimes there are peak loads for some of them, and other times, for other systems, there aren't. It's kind of a continuous effort.

Mr. Schaffer. What does validation mean?

Mr. Smith. Validation means extensive testing of all of the system's work and then examination by an external validator, a group of people who come in that have nothing to do with the development or the testing or anything else. They look at that and they determine by looking at test results and give us reports, that, in fact, this is validated.

There are times when they have said no, in order to validate this, you need to go back and do some other testing, and we've asked them to do that.

Mr. Schaffer. These are for current and existing functions. Have these been held up to some kind of a post-2000 simulation of some sort? Is that what implementation means?

Mr. Smith. They have as individual bases. No, implementation doesn't mean that, but as part of their testing, yes, the year 2000 dates have been pushed through them. They have tested against that, they have tested against test data that contains material that have the Year 2000 numbers in them and so on.

Mr. Schaffer. The bigger variable is the interfaces that your agency is going to have to rely on. If the interface between your agency and key financial institutions after the Year 2000 is disrupted, let's say for three months, what would be the impact on your agency functions for student lending, for example?

Mr. Smith. Well, if we couldn't deliver money to the banks, and that is the question you are asking basically, because the EDCAPS system, which is the financial system, and all of the money runs through that particular system, if that system turned out not to be compliant--and we believe it is compliant, we have tested it fully, we are continuing to ask people on the outside to test with us and so on--if that failed, we'd have to figure out an alternative way, and that will be part of--

Mr. Schaffer. Well, what key financial institutions should we be concerned about?

Mr. Smith. Which banks and things?

Mr. Schaffer. As far as your interface.

Mr. Smith. Well, we interface with a lot of different banks, thousands of banks. We interface with a number of other institutions, Sallie Mae, for example, the guarantee agencies, which are a certain kind of financial institution.

Mr. Schaffer. Can you give us any sense for what we should expect as far as those interfaces at this point in time after 2000?

Mr. Smith. I think what you will find is that in terms of the financial institutions, you will find there will be some banks that may not be ready. That seems to be the judgment made by--as you know, there are a series of different--

Mr. Schaffer. Do we know that today? When you say some banks, do we know which ones?

Mr. Smith. I don't know the answer to that.

Mr. Schaffer. Does somebody know?

Mr. Smith. People are working on that throughout the government, yes. The Treasury Department, I believe, is running the--

Mr. Schaffer. Yes, somebody does know?

Mr. Smith. The Federal Reserve is overseeing all of this orchestration of whether or not the banks themselves are Year 2000 compliant. Let me expand a little bit. If one bank isn't compliant, another bank will be compliant. They have been working hard, it's their business, and they have to do it.

And, for example, if we are sending money to a local school in your district, if that bank isn't working, all they need to do is set up an account in another bank and we can deliver to that bank. So you have an automatic backup. All we need is one bank in the area and we've got it.

Mr. Schaffer. How about the interface with telecommunications systems? What kind of thoughts have we given to that so far?

Mr. Smith. I'm not sure what you mean by the interface with telecommunications systems. We have embedded chips in some of the telecommunications systems.

Mr. Schaffer. I don't mean yours. I mean those that you rely on to wire transfers, send faxes.

Mr. Smith. Bell Atlantic, for example. The government is working with Bell Atlantic. We don't have a direct responsibility there because the responsibility is coming through--

Mr. Schaffer. What would happen to your agency and to the American people if the interface between your agency and key telecommunications networks were disrupted for three months?

Mr. Smith. Well, for certain things we have backup for that. We have our own intra-network system called TIVWAN, which is the Title IV Wide Area Network, which does communicate with colleges and universities all over the country. If we had that kind of situation, there would be certain functions we probably couldn't do. We probably couldn't deliver money, although we could deliver information.

Your Department recently submitted to the Higher Education Reauthorization Conference Committee an amendment that would allow the Secretary to postpone implementation of new student assistance provisions contained in that bill.

If the Secretary decides that it will interfere with the Year 2000 compliant efforts of schools, is that sweeping authority being requested because the Department has no real plan in place for working with its data exchange partners?

Mr. Smith. No. It is being put in for exactly the reasons that Mr. Webster and Mr. Ross, I believe, both mentioned. That is, the issue that we should be thinking about Year 2000 in an overall policy environment and we should be thinking about policies in the Year 2000 environment.

Mr. Schaffer. Do you believe you have a plan for working with your exchange partners?

Mr. Smith. We believe we have a plan for that, that's right. And we are developing a much more comprehensive set of contingency plans.

Mr. Schaffer. Is this a full description of it?

Mr. Smith. No.

Mr. Schaffer. This description of it suggests that what you have done is sent out letters, brochures, held a couple seminars, posted a Web site, set up electronic mailboxes, and a Power Point presentation.

What more is there? What more can you show us than this?

Mr. Smith. One of the things that we try to do is to work with the various groups that serve, that represent the organizations that we have. For instance, the community colleges. We have worked with them.

Mr. Schaffer. I know what you can do. I want to know what you have done other than what's been presented here.

Mr. Smith. We have worked with them. We worked with them in designing a survey. We worked with them on ways to get information.

Mr. Schaffer. But there is more than what is reported in here, is that what you are saying?

Mr. Smith. Oh, yes. I mean, every senior officer is instructed to go out and talk about Year 2000 when they are out there talking to groups. We've talked about it on television. We've done a variety of different and as much outreach as we can possibly push, and we would be delighted if you would do some in your communities. They'll listen to the congressmen.

Mr. Schaffer. Let me ask you, why does your Department deserve special treatment that other Federal departments and agencies are not getting with respect to allowing the Secretary to waive specifically congressionally authorized programs if their Secretary and some other agency or Department believes that they will have difficulty complying?

Mr. Smith. I believe that there has been a general discussion about this with the Congress, as well as with the Cabinet officers and Sub-cabinet, about the need to try to control the number of changes that are going to be made. And if there are legislative changes that look as though they might interfere, to try to get this kind of waiver authority.

And I believe the IRS has asked for it. I don't know whether they have gotten it, but I believe they have asked for it. I suspect you will see this in other instances, as you go on throughout the year.

We deliberately took out the Department of Education as one of the criterion in that legislation because we believed it will be on time. We don't know if every one of the trading partners will be on time and we don't know whether or not there is going to be certain changes in the HEA that will necessitate major system changes in our trading partners.

If there are, I think we have to take a very serious look at this. It is not something we would take lightly. The Secretary wouldn't take it lightly. He would confer with the trading partners and I'm sure he would talk with the Hill. And he would come to some sort of decision that would not be based upon not wanting to implement that. He doesn't believe that, he believes that he should be carrying out the will of Congress on these things.

Mr. Schaffer. I appreciate the Chairman's indulgence. Thank you.

Chairman Hoekstra. Not a problem. Just one question, Mr. Smith. Is it true that the Department just appointed a contingency planning team for the Student Aid Program less than two weeks ago? Is that accurate?

Mr. Smith. Yes, I think that's right, the teams themselves.

Chairman Hoekstra. Okay.

Mr. Ross. Mr. Chairman, since my testimony got discussed, could I respond to one of the comments from Congressman Schaffer.

Chairman Hoekstra. Briefly.

Mr. Ross. Very briefly, my point that I was making in the document is that to say that because this is a blue line all the way up to the top doesn't mean that you are successfully completed. I don't think anybody at this table thinks there will not be problems. The question is the severity of the problems; the question is the risk.

The weakness of looking at the little chart here is that these systems all interact with each other, many of them do. NSLDS interacts with six different systems, I think. What you are looking at is 14 out of, I believe, 300 systems the Department of Ed has. I think, as Mr. Webster pointed out, pretending that they are not mission-critical doesn't make them extremely important, so you don't see those.

But I just wanted to point that out. The bottom line is no one knows and you just have to test, test, test.

Chairman Hoekstra. I have talked with Ms. Mink and I think the questioning from the other members indicates that we are all pretty concerned about this. The testimony of the panel, I think, has highlighted why we might be concerned, whether it's the interrelationships of other systems that are out there that I believe, Mr. Webster, you might indicate is not built into this schedule and those sometimes take a lot of time.

I believe that we have had some experiences and some concern that the Department of Education hasn't necessarily always been the best example of implementing leading edge technology, and that the performance on some of these types of programs hasn't always been what we might have hoped it would have been. This, in terms of size and scale, is bigger than perhaps anything the Department, and perhaps any other agency in the government, has dealt with in the past.

We have a number of additional concerns and questions. We are going to coordinate additional activities as to how we, as members, can be informed and stay on top of this, all with the intent of going through 1999 and the year 2000 with as few problems as possible. That is the intent, because I think that at the end of the day, we will be the ones that will be held accountable. And it will be easy for us to point our fingers at a whole bunch of other places, but it will be the students in our districts and our schools who will be saying ``I can't pay my tuition,'' or our local school district saying, ``Where is our money?''

So I think we feel a need for more information. We feel a need to better understand where you are on these charts, what it means when you actually get there, what it means when you don't get there, when we may actually hit the wall and we know that we are actually being successful or we are failing. What are the first signs of failure for an impending crash? Or is it just kind of like you are driving down the road at 60 and it's fine and all of a sudden, you hit the wall. Or do you hear that you've got a flat tire and you'd better stop? We need to know more.

And we are not going to be able to find it out today, but we've learned some things. This panel has been very, very helpful. We appreciate your input and your willingness to be here. We will probably be talking to some of you again.

Ms. Pilkey, no one had a question for you.

Ms. Pilkey. No.

Chairman Hoekstra. I think we are trying to deal with the issues that we have got here in Washington. We understand and appreciate what you are doing, but we think we have some issues we need to deal with upstream.

Ms. Pilkey. Sure.

Chairman Hoekstra. But thank you very much for being here.

Mrs. Mink. I have just one question of Mr. Willemssen. With respect to the systems that are not here on the chart, because reference has been made several times about, well, what about the ones that are not so-called mission-critical, and if there are 300 other systems, is there any gradation that you've developed that goes beyond this chart that we need to be worried about also?

Mr. Willemssen. The Department does have what it calls mission-important systems, and they currently have 24. They also have--

Mrs. Mink. How are we in the 24?

Mr. Willemssen. And, again, Bruce and I probably have a bit of a disagreement on this, but it's important for those mission-important systems that they be addressed also.

Mrs. Mink. Do you have a chart like this for those mission 24--I mean mission-important 24?

Mr. Smith. We can give you a chart like that. We don't--

Mrs. Mink. I would appreciate that.

[The information follows:]

CHART ON DEPARTMENT OF EDUCATION YEAR 2000 COMPLIANCE PROJECT - STATUS OF MISSION-IMPORTANT SYSTEMS AS OF 9/30/98 --

SEE APPENDIX H

Mrs. Mink. And what other category? Do you have a third category?

Mr. Willemssen. There are also 144 mission-supportive systems.

Mrs. Mink. Well, could we have whatever analysis you have for those and how they might affect our constituency?

Mr. Smith Absolutely.

Mrs. Mink. Thank you.

Mr. Smith Ms. Mink, there are 168 of these systems. We would love to give you a chart at the end of the month because I believe that all but five will be implemented as Year 2000-compliant, and of the five, three will be systems that our other Government agencies handle.

[The information follows:]

CHART ON DEPARTMENT OF EDUCATION YEAR 2000 COMPLIANCE PROJECT - STATUS OF MISSION-SUPPORTIVE SYSTEMS AS OF 9/30/98 -- SEE APPENDIX I

Chairman Hoekstra. Excuse me. Out of these 168 and 24 and 14, 5 will be--all but 5 will be--

Mr. Smith. Yes.

Chairman Hoekstra. All but five? All but five will be totally Year 2000 compliant?

Mr. Smith. Right. She's [referring to a member of his staff] saying the 14 criticals are not in that count. You understand that already.

Chairman Hoekstra. Yes.

Mr. Smith. In the two other categories, second and third categories, 168 systems, all but 5 will be compliant and implemented.

Chairman Hoekstra. By the end of this month?

Mr. Smith. I damned well hope so.

Mrs. Mink. Mr. Chairman, could we have a list of the five?

Chairman Hoekstra. Well, we're going to have a hearing on 10/1.

[Laughter.]

Mrs. Mink. Can we have the five, the five that are not compliant? Could we get the list of the five that will not be compliant?

Chairman Hoekstra. Mr. Smith, you just went out on a limb that I hope you're ready to go out on because you're there, and we'll be talking to you in 14 days.

Mr. Smith. Okay.

Chairman Hoekstra. All right, thank you very much.

Mr. Smith. Come by and we will give you lunch.

Chairman Hoekstra. I don't think you can buy me lunch, no. But we will recess until about 10 of 12:00 and then we will do the Labor Department. Thank you.

[Recess.]

Chairman Hoekstra. The subcommittee will come to order, and let me introduce the second panel.

We have Mr. James McMullen, who is the Deputy Assistant Secretary for Administration and Management at the U.S. Department of Labor. And you're back. We have Joel Willemssen, who is Director of Information Resources Management in the Accounting and Information Management Division of the U.S. General Accounting Office. Welcome back. And we have Patricia Dalton, who is the Deputy Inspector General of the U.S. Department of Labor.

Thank you for being here. Let me remind the witnesses that under our committee rules, we encourage you to limit your oral statements to five minutes, but I have a weak gavel, and your entire statement will appear in the record.

Before receiving your testimony, we will ask each of you to take an oath. You should be aware that it is illegal to make a false statement to Congress while under oath. Will you please stand and raise your right hand.

[Witnesses sworn.]

Chairman Hoekstra. Let the record reflect that each of the witnesses has answered in the affirmative.

Mr. McMullen, welcome, and we will begin with you.

Mr. McMullen. Thank you. Good morning, Mr. Chairman and Mrs. Mink. I welcome the opportunity to appear before you today to update you on the status of the Department's Year 2000 efforts and successes. I have a number of positive results to report today, and I think you will see that the Department of Labor is making significant progress in addressing this most important issue.

As Secretary Herman has informed the executive staff of the Department, if the Department's systems are not Year 2000 compliant on January 1, 2000, we have failed those people we are entrusted to serve. It's as simple as that. And I am pleased to report to you that we do expect our systems to be compliant well before January 2000.

Our singular goal has been to ensure that all DOL systems transition to the next century so that they correctly calculate benefits, compute dates, and perform other date-related tasks necessary for the Department to carry out its mission.

The Department has been successful in recognizing the Year 2000 as a management problem, not just a technical problem. To ensure the success of our Year 2000 effort, the Department is utilizing a management approach, which comprises the highest levels of the organization. Each level in this management structure has a clearly defined role, as well as the ability to make and implement prudent decisions.

The Secretary has been actively involved in managing the Year 2000 process. She has made it clear to the Department's executive staff that the Year 2000 issue is a top priority. The issue of Year 2000 is a standing agenda item on her weekly executive staff meeting.

In addition, the Deputy Secretary has been actively involved. She is serving as the Department's representative to the President's Council on Year 2000. She also chairs a Departmental Management Council, and Year 2000 is a standard item on the meeting agenda, as well. The Deputy Secretary has also engaged in intense one-on-one meetings with her executive staff to ensure full attention and focus on Year 2000 efforts.

The Chief Information Officer, or CIO--and my boss--has functional responsibility for managing, tracking, and coordinating the Department's day-to-day Year 2000 efforts. In addition, several months ago, she entered into a partnership with the Department's Inspector General to attest to the sufficiency of agency plans, progress, and accurate reporting to the Secretary, Deputy Secretary, OMB, and the Congress.

In short, the Department has established an appropriate management structure to ensure Year 2000 progress, accountability, and ultimately, success. The success of our management structure so far is evidenced by the fact that we have completed 24 of our 61 mission-critical systems, and are ahead of our schedule for completing system renovation.

Our plans call for 11 more systems to be compliant by November, and the remainder to be implemented by March 1999. We have made great strides in our progress and are confident that we are on target to achieve our Year 2000 goals.

We are also developing Business Continuity Contingency plans based on GAO guidance for all of our 61 mission-critical systems. The basic reason for such plans is simple: while we expect the Department's systems to be Year 2000 compliant, it is just good business to have a workable and tested backup system. All plans will be final by the end of this month.

It is also vitally important to ensure that the systems reported as Year 2000 compliant are indeed compliant. Therefore, we are also currently performing independent verification and validation, or IV&V, on our compliant systems. We will have six of those completed next month, 20 by November, and all systems validated by June 1999.

Finally, it is often the case that a system will pass or receive data to or from other systems, known as data exchange. Both the sending and receiving systems must recognize the data in the format in which it is sent in order to work properly. Of the 3,000-plus data exchanges the Department has with our state partners, such as unemployment insurance, nearly three-quarters have been successfully tested. I know other members of the panel will have more to say about our unemployment insurance state systems in their statements.

In short, we expect the Department to be Year 2000 in March 1999.

Mr. Chairman, this concludes my statement. I would like to thank you for the opportunity to be here today. I would be happy to answer any questions you may have.

[The statement of Mr. McMullen follows:]

WRITTEN TESTIMONY OF JAMES MCMULLEN, DEPUTY ASSISTANT SECRETARY FOR ADMINISTRATION AND MANAGEMENT, U.S. DEPARTMENT OF LABOR -- SEE APPENDIX J

Chairman Hoekstra. Thank you very much. Were you here for the earlier panel?

Mr. McMullen. Yes, I was.

Chairman Hoekstra. And you saw the chart that we were taking a look at for the Department of Education where they showed when validation and implementation?

Mr. McMullen. I did not see it, but I know of its existence.

Chairman Hoekstra. And then the stuff that you are doing for a number of your programs between now and June of 1999, would that stuff be over and above the top of their chart?

Mr. McMullen. I don't know.

Chairman Hoekstra. Maybe Mr. Willemssen can answer that question.

Mr. Willemssen. Yes, the activities that Mr. McMullen just discussed were from an independent verification and validation perspective. That is, somebody independently going in and saying, yes, you, Department, did indeed do what you said you did. So there is a distinction there.

Chairman Hoekstra. That's not built into the Department of Education's cycle?

Mr. Willemssen. The Department of Education also has IV&V activities underway, but it was not built into that chart.

Chairman Hoekstra. It's over on top of the chart. It would be additional time in the future.

Mr. Willemssen. It would be additional time, but not necessarily waiting. It would also be going--

Chairman Hoekstra. Simultaneously.

Mr. Willemssen. I mean, as we are doing renovation, validation, implementation, some of those IV&V activities are also occurring.

Chairman Hoekstra. Okay, excuse me. We are ready to hear about your analysis of the Labor Department.

Mr. Willemssen. Okay, and I will quickly summarize that analysis. Like Education, Labor faces some significant risks of Year 2000-related impacts, too. For example, according to the Department, billions of dollars in benefit payments such as unemployment insurance and workers' compensation would be at significant risk of disruption, and accurate labor statistics may not be provided.

In addressing these types of risks, Labor has made progress. The Secretary has made Year 2000 a top Departmental priority and directed steps to quicken the pace. However, there are still some systems that are at risk.

First, let me discuss the unemployed insurance area administered both by Labor's Unemployment Insurance Service and the States. Each of the States has its own system to handle benefits and tax collection in this area, and many of these systems are already at risk because of Year 2000-related problems that could crop up as early as January of 1999 with those systems doing projections one year out into the future.

Labor has been monitoring State's progress in this area, and in doing that, they have put States into one of four different categories. First, those States in high alert status, which are at the highest risk of failure, and according to the Department, ``that appear almost certain to fail by January 4, 1999.'' The second category is the States that are at risk, those that are significantly behind. A third, a yellow caution category, those that are on the border of not making sufficient progress. And finally, green, those that are making good progress.

The Department has placed Puerto Rico and the District of Columbia in the high alert category and told them that they immediately must put together contingency plans to replace their existing system.

Labor has also placed five States in the at risk category and told these States to submit contingency plans for their benefit systems by October 1.

Next, in the Worker's Compensation Program area, we recently reported on Labor's efforts to address its four mission-critical systems. Of the four, the one that was most at risk was the replacement system for the Black Lung Program, and until recently, the existing system was scheduled to be replaced by a new system in November 1999, obviously dangerously close to January 2000. Labor has revised that strategy and now they are planning to renovate their existing system within all the deadlines.

BLS has a significant number of Labor's mission-critical systems, too. Of the 23 systems that they have, 11 of those are considered compliant; eight are being replaced, and four are being repaired. The eight BLS replacement systems are scheduled to be implemented between October 1998 and March 1999. And while these systems vary in size and complexity, it is worth noting that replacement systems in and of themselves, especially in the government, represent a high risk, because we in the government don't do a very good job of putting major computer projects in on time. So that's something that Labor will have to be alert to, also.

In addition, as requested, briefly turning to PBGC, which has 13 mission-critical systems, 12 of which have been replaced in the last four years. It is on schedule to complete validation and implementation of those replacement systems by February of 1999.

PBGC does have a financial accounting and reporting system, one system that has not yet been replaced and is not due to be implemented until June of 1999. This system is critical to the tracking of billions of dollars related to PBGC's annual financial transactions, but because of that late implementation date, PBGC has now reconsidering its options, potentially looking at going a different way in order to get it done quicker.

That concludes a summary of my statement, and I also would be pleased to address any questions you might have.

[The statement of Mr. Willemssen follows:]

WRITTEN TESTIMONY OF JOEL WILLEMSSEN, DIRECTOR, INFORMATION RESOURCES MANAGEMENT, ACCOUNTING AND INFORMATION MANAGEMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE -- SEE APPENDIX K

Chairman Hoekstra. Thank you. Ms. Dalton.

Ms. Dalton. Good morning, Mr. Chairman and Mrs. Mink. Thank you for inviting the Office of Inspector General to discuss the highly important and pressing issue of Y2K computer conversion with respect to the Department of Labor. I am here in my capacity as Deputy Inspector General to present the views of the Inspector General's Office, which may not necessarily be the same as those of the Department.

In my testimony today, I will address the Department's progress towards Y2K compliance of the 61 mission-critical systems, DOL's relationship with the States, contingency planning, and finally, the issue of independent verification and validation of Y2K compliance.

In April of this year, the OIG, as part of our agreement with the CIO, began a comprehensive assessment of the Department with respect to the Y2K problem. Accordingly, the scope of the audit work that we performed covered all 61 mission-critical systems within the Department and focused on developing baseline information on system status, assessing overall progress, and identifying concerns.

The OIG also examined the Department's business priorities, the overall system impact of Y2K on the Department, whether DOL had met OMB guidelines for Y2K compliance, and how DOL is handling the issue of data exchanges with the States and external agencies.

First, we examined the issue of business priorities and ranked the DOL mission-critical systems into six priority categories. Notably, of the 61 systems, only the Davis-Bacon system was identified as requiring immediate management action. Since the release of our report, the Department has advised us that the Davis-Bacon system has been renovated and tested. However, we have not independently verified this information at this time.

The OIG also examined the overall Y2K impact on agencies and then determined whether the Y2K problem would have a high, medium, or low impact on the Department's ability to provide services and information to people, businesses, and other government agencies.

Of the 61 mission-critical systems, we found at the time that 22 were reported compliant, with the remainder with work still to be done on them. The current status, according to the Department, is two more are compliant, with 37 remaining to reach the reported compliance. And that is pictured on the graph to my right and your left.

Of the 61 systems, 9 have a high impact on services and one of these was compliant, 10 a medium impact, and 2 are compliant. Then 42 had low impact and 19 were compliant. In that low impact category, an additional two systems have now been reported as compliant.

The OIG has also examined the Department's Y2K needs in terms of OMB's requirements that include five phases: awareness, assessment, renovation, validation, and implementation. It is only after each phase has successfully been accomplished that OMB credits an agency with progress. When comparing DOL's progress to OMB guidelines, DOL is behind in the renovation, validation, and implementation phases.

As I discussed in my full statement, one of the areas we are most concerned with is the Unemployment Insurance Program. Though there are four major systems that are operated by each State in the Unemployment Insurance System, our immediate concern is with the benefits system. Currently, as it relates to the UI system, there are seven States and territories struggling to maintain sufficient Y2K progress. They are Arkansas, Delaware, the District of Columbia, Montana, New Mexico, Puerto Rico, and the Virgin Islands. And as was previously mentioned, the District of Columbia and Puerto Rico are at the very high risk point.

In addition to the seven at-risk States and territories, other States have been placed on the watch list. There are four currently on that watch list, and they include Illinois, Louisiana, Maine, and Nevada.

In addition to the concerns that I have already discussed, Mr. Chairman, the OIG found a number of other management issues of concern. They include agency reporting, scheduling of independent verification and validation, and contingency planning by DOL and the States.

For example, the OIG found multiple errors within DOL program agency reports. However, as a result of the CIO's close scrutiny of the information reported by our program agencies, errors did not appear in the final Departmental reports to OMB.

We also have concerns with the scheduling of independent verification and validation. The Department has 24 systems that are reported compliant and only 6 of these have currently been scheduled for IV&V. In addition, the CIO has indicated that an additional 11 systems will be compliant by November of this year. With all the additional systems becoming compliant, it is paramount that the Department begins to schedule and perform independent verification and validation as quickly as possible.

Finally, we are concerned with the status of contingency planning. When we completed our audit in late July, most of the agencies did not have written contingency plans. Although all of the contingency plans have now been submitted, none of the plans have been evaluated for their completeness and comprehensiveness. An evaluation of these plans is necessary to ensure that they contain all the necessary tools for effective contingency planning.

Mr. Chairman, as we approach the Year 2000 deadline, the OIG will continue to monitor the Department's progress, provide assistance as appropriate and feasible, and apprise the Congress about those areas where Y2K compliance is not being achieved.

This concludes my prepared statement, and I would be pleased to answer any questions from the committee.

[The statement of Ms. Dalton follows:]

WRITTEN TESTIMONY OF PATRICIA A. DALTON, DEPUTY INSPECTOR GENERAL, DEPARTMENT OF LABOR -- SEE APPENDIX L

Chairman Hoekstra. Thank you. I think one of the questions we had, Mr. McMullen, was you had 61 mission-critical systems.

Mr. McMullen. Yes, sir.

Chairman Hoekstra. And one of those would have been Davis-Bacon.

Mr. McMullen. Yes, sir.

Chairman Hoekstra. And then you had 53 unemployment systems and those were not identified as mission-critical.

Mr. McMullen. Those are State systems. Those are not our own systems.

Chairman Hoekstra. There is no interface?

Mr. McMullen. We do have an unemployment insurance system that interfaces with the States, and that is considered a mission-critical system. But the 53 State systems are not ours and not in our list of mission-critical systems.

Chairman Hoekstra. Okay. Ms. Dalton, I am interested in what you said about Davis-Bacon. You said it needed immediate attention. What does that mean?

Ms. Dalton. What it meant at the time was that it was very much behind schedule. It was scheduled for renovation and upgrading and at that point in July when we issued our report, sufficient progress had not been made. It was considerably behind schedule.

Subsequent to that time, the Department has reported that they have intensified their efforts on the Davis-Bacon system and have brought it up on schedule and that the renovations are just about completed and testing is underway. As I said, we haven't been back in at this point to verify that that information is correct.

Chairman Hoekstra. Mr. McMullen, for your 61 mission-criticals, do you allocate by system the costs associated with bringing each one up to Year 2000 compliance?

Mr. McMullen. We have done that. I do not have that information system by system with me.

Chairman Hoekstra. But that would be available for us, if we asked for a listing of the 61 mission-critical systems. And you could then break down at least a portion of the cost that you're incurring for Year 2000 by system, recognizing that there is probably some overlap and those types of things. But you could perhaps do that?

Mr. McMullen. Yes, we can do that.

Chairman Hoekstra. Mr. Willemssen, as we go through the Department of Education, and I don't know if Ms. Mink has the same concern that I do, but we listened to the testimony from the agencies, and I think Mr. Norwood said it, we get a rosy scenario.

When and how will we know whether the scenario that is laid out for us is an accurate assessment and whether we are well on our way or whether we are in trouble?

Mr. Willemssen. Excellent question, one of which we have been concerned about for some time. Because of that issue, we have been actively pushing for independent verification and validation activities. So we are glad to hear that both the Departments of Labor and Education are doing that. If indeed, that rosy scenario is not an accurate scenario--

Chairman Hoekstra. I'm not sure it's rosy. That's why I said whether it's accurate. I misspoke myself, because I don't want to prejudge what the Departments have said.

Mr. Willemssen. That's where the criticality of IV&V comes in, because you have an independent agency. I don't think it's that the top managers in the Department don't want the truth either. But as the message escalates up, sometimes it gets a little rosy, and the top managers, in my experience, want that independent organization to come in and tell them what's really going on here. This is what I am being told, please tell me if it is not the case.

In fact, going back to Education, what you saw at the Department with its late start was that they initially deemed many systems compliant. Well, they look like they are good. Then they started going into more depth and found out that was not the case. And that's why it's important to have that independent agent go in and do that.

Chairman Hoekstra. Well, Ms. Mink and I are excited, because we are going to have Mr. Smith back on October 1 or 2 and we are going to get an accurate report of the 168 programs he said would be compliant.

Mr. McMullen, would you like to make any statements like that now, so that you could come back with him, or would you--

Mr. McMullen. I would not like to make a statement like that.

[Laughter.]

Chairman Hoekstra. All right. Ms. Dalton, what should Ms. Mink and I be looking at? Have you been tracking--obviously, you have target dates that the Department has put in place. Have you taken a look at their target dates that they have established perhaps over the last 8 or 12 months in regards to Year 2000 compliance and seen a pattern of whether they are hitting those dates or whether they are missing those dates?

Ms. Dalton. Yes, we have, Mr. Chairman. That was part of our comprehensive assessment that we had issued to the Department in July. We found that in many of the systems, we put them in a yellow category, an area that needed to be watched. Most of those were due to the fact that the Department hadn't scheduled at that time the independent verification and validation that we believe is so critical, and they had not started developing sound contingency plans.

The Department has been responsive in both of those areas, but our intent is to continue to watch what is going on, identify where systems are slipping, and bring that independent look at what is going on in the program agencies of the Department and report to the CIO, as well as to the Deputy Secretary. Our reports are, in fact, going directly to the Deputy Secretary on this issue.

Chairman Hoekstra. Have you found a pattern where they are actually hitting dates consistently, or are you finding a pattern where it's hit or miss, or are you finding a pattern that it is mostly miss.

Ms. Dalton. I wouldn't say that we are finding any consistent pattern. Some dates are being made; some aren't. A critical point occurred in the spring of this year where a number of systems were shifted, systems that were going to be replaced, and we weren't on schedule in time to replace those systems, and they were put into a repair mode.

Similarly, at the State level, we found a number of States that their dates were slipping. They weren't going to be able to replace systems that they had planned to replace, and now have shifted into a repair mode. In fact, that is the cause for concern for many of the States on the watch list that we have got.

So it's a moving target, and what it requires to manage this is honest assessments of where we are at any given time and being willing to make the hard decisions of we're not going to make it, we need to implement a contingency plan.

Chairman Hoekstra. I see you--

Mr. Willemssen. Just one comment I want to add, Mr. Chairman, is that we be cautious about making sure that Departments hit dates, especially as we are more and more into testing, because we have been cautious about not trying to send a signal that hit the date regardless of the level of testing. Most of the organizations that are far ahead on Y2K are finding they are not hitting their dates, because testing was much more complex and time-consuming than anticipated.

So you have to balance it in terms of hitting the dates and making sure that it is not hitting the date and therefore shortcutting the necessary testing.

Chairman Hoekstra. In the private sector we always looked at hitting the date as doing the work to verify what was supposed to be done on that date actually was done, and that you wouldn't hit the date if you said, well, we hit the date but we didn't do half the work or half of the checking. Ms. Mink.

Mrs. Mink. Thank you very much. As with the inquiry that I made with the Department of Education, in the case of the Department of Labor, Mr. McMullen, you indicated that there were 61 mission-critical. The Department of Education indicated that were three or four other categories. Are there other categories?

Mr. McMullen. We have divided ours into two categories, mission-critical and nonmission-critical. In our nonmission-critical, which I did not address in my oral statement, but I do in the written statement, we have 79 of those.

Mrs. Mink. And how are you with reference to compliance with those systems?

Mr. McMullen. We are farther ahead of compliance in the nonmission-critical than we are in the mission-critical. A lot of that, however, is due to the fact that they are newer systems and were already Year 2000 compliant. So that is the reason we have more compliance in the nonmission-critical area.

Mrs. Mink. When did the Department discover that they had a problem here and that they had to address additional resources to take care of it?

Mr. McMullen. We have been aware of the Year 2000 problem for quite some time, and have been actively working on it from very early stages. It did take a while to get totally up and running, but we have known, in our CIO arena especially, of this problem for some time.

Mrs. Mink. When you have completed the entire project, can you estimate what the cost of the conversion to compliance is going to be?

Mr. McMullen. Our most recent estimate to OMB in the August 15 report that we turned in was $51 million.

Mrs. Mink. Now, when you say that the system is in compliance as of such-and-such a date, or will be in compliance, how is that translated in terms of the outside community, the consumers, the people that you share data with or are dependent upon interaction with you? What is their level of ability to interconnect to your new system?

Mr. McMullen. Well, for all of those where we have data exchanges, we are working with our partners in those data exchanges to ensure that they have the same compliance level as ours, because it will be necessary for us to talk back and forth.

Mrs. Mink. So while you are doing your own upgrading to make sure that you can receive information or collect information or input information for the Year 2000, you also have an analysis with reference to all of the interdependent communities--

Mr. McMullen. That is correct.

Mrs. Mink. --and their ability to interconnect with you. What is the status of that relationship with the consumers?

Mr. McMullen. It is an ongoing dialogue and relationship we are having with our State partners, our Federal partners, and some private sector partners.

Mrs. Mink. Well, what I mean is you have assessed your system as 67 percent in compliance, 78 percent. What is the level of your being able to perfect and interconnect with the dependent agencies?

Mr. McMullen. The data I have is that three-quarters of the State systems that we partner with have been tested and there is still one-quarter left to do. We also have the scorecard on the State unemployment insurance systems that Mr. Willemssen and Ms. Dalton discussed, and have addressed where there are problems in those states.

Mrs. Mink. On page 15 of your prepared testimony, you say that the unemployment insurance systems shows that most States are making progress. Then you say, ``As you are aware, the Year 2000 horizon date, i.e., the date that a system failure will occur, is January 1999.''

Would you explain that, please.

Mr. McMullen. To the best of my ability, I will, yes. It is my understanding that when a claimant comes in to an unemployment insurance office, benefits are determined for a year out, because people may be on and off the rolls over the period of a year. So the unemployment insurance system determines their benefits for a whole year, so it would be necessary to be able to compute the benefits into the Year 2000 beginning on January 4, 1999.

Mrs. Mink. So if the State system is not able to interconnect with your system, then what is the difficulty? What is the experience of the unemployed person at that point in the State of the highest risk?

Mr. McMullen. This is more not with an interface with us, as within their own system that it's necessary for them to able to determine the benefit levels. These are their own State systems that they have developed. If there is not a system that is Year 2000 compliant, or if there is not an adequate contingency plan, there is a possibility of not being able to determine the accurate benefit level.

Mrs. Mink. Because the accurate benefit level is dependent upon your statistics?

Mr. McMullen. No, it's dependent upon being able to calculate into the Year 2000.

Mrs. Mink. Why can't that just simply be done within the State in a sort of internal homogenized process?

Mr. McMullen. That's where it will be done.

Mrs. Mink. So when you talk about the States that are at risk, these States like Arkansas, Delaware, and so forth that are considered at risk or in the red code, this is what you are relating to.

Mr. McMullen. Yes. These are State systems that they have to develop themselves. They do talk with us, but these are their own unemployment insurance systems. Each State has its own unemployment insurance system and determines its own benefits based on the guidelines that are established and the laws that are out there. But they establish their own benefit levels and make their own estimates.

Mrs. Mink. Now, with respect to all the other 68 programs aside from unemployment insurance, which you have said are in your mission-critical level, are these States also in the red code, or the other 60 programs that are mission-critical? You have isolated in your report here unemployment compensation, and you have identified these 10 or so States.

Mr. McMullen. Yes, ma'am.

Mrs. Mink. Now, for the other 60, do you have similar concerns with reference to individual States that are not able to operate these other 60 programs?

Mr. McMullen. We are making progress in a manner which is satisfactory to us with all of these other programs.

Mrs. Mink. With reference to the other States and their capacities?

Mr. McMullen. Yes, ma'am.

Mrs. Mink. So it's only in this one area?

Mr. McMullen. It's their own unemployment systems where we have the biggest concerns.

Mrs. Mink. What about some of the other programs, like OSHA and other kinds of--in fact, the Bureau of Labor Statistics?

Mr. McMullen. The Bureau of Labor Statistics--I don't have the number in front of me, but they have many, many interfaces with the States, and we are working with the Bureau to ensure that all of these systems are Year 2000 compliant and the States are able to communicate with the Bureau.

Mrs. Mink. So which States are not now capable? Is it these same States? I am trying to find out whether these States you have identified in the unemployment area also have similar problems with other of your mission-critical programs.

Mr. McMullen. I don't know the answer to that, Mrs. Mink. I would have to provide that for the record, if I could.

Mrs. Mink. So when you say you have contingency plans that are being established for these red code States, contingency for what? Only for unemployment compensation?

Mr. McMullen. Yes, ma'am. It's to ensure that there is a continual payment of benefits, no interruption of benefit payments.

Mrs. Mink. Well, your contingency plan is isolated and restricted only to benefit payment proposals.

Mr. McMullen. No. There will be contingency plans for the tax systems as well that is in the unemployment insurance system, but the immediate concern is the benefit side, because that is where we have the problem beginning on January 4, 1999.

Mrs. Mink. And with respect to the other 60, you are not particularly concerned about States' ability to interface with the system?

Mr. McMullen. Oh, we are very concerned, but this is our highest concern.

Mrs. Mink. So what is the second-highest concern? I am trying to find out what other areas not elaborated in your statement are caution zones that we ought to be addressing our attention to with respect to our individual States.

You have a mission, which has responsibility for the Federal system, its compliance, its testing, et cetera. We who sit here as representatives of our constituents come from States, and we are anxious to find out from you where there are problems such as your identifying these States with reference to the unemployment insurance program. I want to know, are there other areas that my State might run into some difficulties that we ought to be alert to at this point in time, or is it limited to these nine States.

Mr. McMullen. I have to confess, I do not know what our second-level concern is. We can provide that for you, but I don't think it would be fair for me to guess what that is and it not be correct.

Mrs. Mink. Perhaps the other members of the panel can address it. Have there been other programs or systems which have resulted in the identification of these States who are at risk?

Ms. Dalton. Not to my knowledge, Mrs. Mink. The biggest concern, as Mr. McMullen said, has been with the unemployment system because of the direct services it provides to individuals, with the benefit system being the primary concern because of the date coming up in three months. After that, we would work through the other systems within that program, which would be the tax collection, which collects taxes from the individual businesses and the employment service, which handles our job bank and our talent bank. Those are direct services to the taxpayers that we are particularly concerned with.

The other interfaces that the Department has would be things like our grant programs where we are providing financial support to State and local governments. That obviously is a concern for us at the departmental level that we can provide those funds and make those available.

Mrs. Mink. In the case of Puerto Rico's unemployment program which is not ready and a contingency plan will be required, can you briefly describe what that contingency plan might look like in order to obviate a total crash of this program as to its availability in Puerto Rico?

Ms. Dalton. A team is leaving from the Department and will be going from the Department of Labor next week down to Puerto Rico to assist them in developing a plan. It is a mixed team of staff from the CIO's office, my office, some of our contract support, as well as program people, so that we bring all of the talents that we have to bear on the situation.

What they will be doing is identifying alternatives so that we can continue to provide benefits to the people of Puerto Rico. They may include a wide number of things. Is there a possible patch to their system that will not result in a perfect result, but at least let the benefits continue until we can fix the system? Is there another system that we could put in on a very quick basis that will keep benefits flowing, but will not provide everything that we need?

We have had a similar experience in the Virgin Islands, where a system crashed and we were able to develop a PC-based system to handle that interim period. Similarly, could another State step in and assist the Commonwealth of Puerto Rico.

So those would be some of the options that would be looking at. There may be others that the team will consider.

Mrs. Mink. Are similar teams being sent out to the other nine States to help them also, not only Puerto Rico?

Ms. Dalton. Puerto Rico is at the most immediate risk. As we said, the two that are in most danger right now are Puerto Rico and the District of Columbia. We have recommended in a report this week to the CIO that the experience that is developed out of Puerto Rico, that similar teams be developed and ready to move into the States to assist them if they reach a critical point like Puerto Rico currently is at.

Mrs. Mink. Thank you, Mr. Chairman.

Chairman Hoekstra. Thank you. Is it true that Michigan was recently on the high-risk list?

Ms. Dalton. I believe Michigan was on the watch list.

Chairman Hoekstra. And Michigan has moved off?

Ms. Dalton. Yes, it has.

Mr. McMullen. Yes, sir.

Chairman Hoekstra. What a governor. Let me ask you, because I have talked to people about this, part of this is a very mechanical process. Isn't it that you have so many lines of code to go through? You've got to rewrite so many lines of code. And moving people back and forth on this list is not that you are going through some research and development and then hit the jackpot, and you've got the right answer. Rather, it's somebody actually had to go through x number of lines of code and rewrite this.

So some of the people I have talked to have said that some private sector companies are just taking a look at the millions of lines of code that they have to go through. And they take a look at their resources and how many people they having working on it and how many lines of code that they have to get done, and they say mechanically we can't even get it done.

So it is a little surprising to me that, Michigan, Maine or wherever, can mechanically get this done so quickly. I don't know if GAO or the Department of Labor has taken a look at literally how many lines of code they have to write and whether they have the people that can actually get it done.

Mr. Willemssen. We haven't looked in detail, but all I would point out is that each State, although providing a similar program, will have often very different architectural characteristics for their system. One system may have a mainframe-based system, another State may be decentralized and processing the data out in multiple locations.

Actually, what we have seen experience-wise over the last 12 to 18 months is that the renovation times per systems generally speaking is not taking as long as we anticipated, because there are a lot of tools out there that are helping us do the job quicker.

The testing, though, is still taking much longer than we anticipated.

Chairman Hoekstra. So the mechanical part of actually rewriting the code is not as difficult, perhaps?

Mr. Willemssen. In some cases, it can be fairly simple through the use of some automated tools that have come on the market. But you've still got to test that your tool worked like you thought it did.

Chairman Hoekstra. Do you know how many lines of code you've still got to go at the Department of Labor?

Mr. McMullen. I do not.

Chairman Hoekstra. Does somebody?

Mr. McMullen. At the Department level, we do not know how many lines of code need to be done in each of the systems.

Chairman Hoekstra. But when you take a look at the number of programs that need to be done, and roughly the person-hours that might be needed to get it done, do you have the resources and the people in place to get it done?

Mr. McMullen. We believe we do. We have looked at each system and what needs to be done and what resources need to be devoted to it. We are confident that the resources we are devoting, assuming that there are no unanticipated glitches if you will, that we will make all of the dates that are before us on becoming Year 2000 compliant.

Chairman Hoekstra. Okay, thank you for that commitment. Those were Ms. Mink's words, loosely interpreting her statement, taking liberty with her statement.

[Laughter.]

But Mr. Willemssen or Ms. Dalton, have you taken a look at roughly how much work you think may need to be done and whether the resources and the dollars are available, because I am quite amazed. This is one of the few times that the Department of Education and Labor have maybe testified in front of either a subcommittee or a full committee and have not asked us for more resources. Neither one of them has asked us for anything to help get the job done, and they say it is all okay.

Ms. Dalton. Well, I think we have expressed some concerns over the past year on resource commitment and whether or not they have been sufficient. The estimates have increased as the Department has gone through this process.

I believe initially it was somewhere around $20 million.

Mr. McMullen. Twenty-seven.

Ms. Dalton. And now the estimate is at $51 million. It is difficult to know if that will be sufficient. It depends on if there are any difficulties that were unanticipated as the Department goes through this process. It is my understanding the Department has requested additional funds through the emergency funds that are being provided on Y2K.

Mr. McMullen. Right. When I was talking about having adequate resources at this time based on no unforeseen circumstances, I was referring to the Department of Labor's own systems. But to get to the State unemployment insurance systems, we do have a problem.

There was originally $200 million appropriated for this activity in the Fiscal Year 1998 appropriation; $160 million of it was appropriated in 1998 funds and $40 million was appropriated in 1999 funds. The House left that $40 million in the Fiscal Year 1999 appropriation. The Senate committee has recommended that the 1999 funds be rescinded and be put into the overall emergency supplemental pot for the Year 2000 problem.

So there is a potential $40 million problem right there, if that rescission goes through and we don't get those funds, there is a problem in the States. Additionally, the Secretary is sending up today a reprogramming request in the unemployment insurance funding arena for $45 million more to go to the States to work on the Year 2000 issue.

Chairman Hoekstra. When will we know whether we have a really good handle on that? You said January 4, 1999 is when we will start getting a feel for unemployment? One of us will be scheduling a hearing for January 5, right.

Ms. Dalton. I think as far as the Departmental systems go, we really will know whether or not we have been successful when we finish that independent verification and validation. Because at this point, what we have is 24 systems that are reported compliant, and that is reported by the people that were actually revising the code.

In a job of this size, obviously errors can occur and things aren't seen that should have been corrected. By bringing in that second independent party to take a look at these systems and go through the detailed testing, I think we will have a much higher comfort level than what we do now.

And obviously, we won't know until we reach the bottom line of January 2000.

Chairman Hoekstra. Ms. Mink.

Mrs. Mink. On the matter of the States coming into compliance, you said that there was $200 million set aside for that purpose?

Mr. McMullen. Yes, ma'am.

Mrs. Mink. That is in whose budget?

Mr. McMullen. It was appropriated to the Department of Labor in what is called the SUIESO, the State Unemployment Insurance and Employment Services Operations account.

Mrs. Mink. And that is being channeled out to the 9 or 10 States that are in critical need?

Mr. McMullen. It was channeled out to all 50 States.

Mrs. Mink. All 50 States.

Mr. McMullen. All 50 States received initial funding of $1 million. And then each State came in with a resource need based on the problems that they had in the Year 2000 issue.

Mrs. Mink. And that's where you say $40 million is now a shortfall.

Mr. McMullen. Well, if what happened in the Senate continues, that will be a $40 million issue that we have.

Mrs. Mink. What about the additional $45 million that we just heard as an additional need? Is that $45 million on top of the $40 million?

Mr. McMullen. Yes, ma'am.

Mrs. Mink. And who is paying for all this independent verification? Is this coming out of the States? Is it coming out of the U.S. Labor Department? Who is paying for this need for independent verification? Has that been added to the budget?

Mr. McMullen. That's one of the reasons we are requesting the reprogramming of $45 million. When we first started talking about Year 2000, there was not much discussion about independent verification and validation. So there are these unanticipated costs that we did not really take into account when we initially proposed our budget.

Mrs. Mink. Is the $200 million that is set aside for the States going to include the verification or not include it? And the $45 million is for them, or is that for your Department?

Mr. McMullen. No, that is all for the States. The $45 million is all for the States, as well. The States will be doing the independent verification and validation. And I believe the Inspector General will be working with them, as well.

Ms. Dalton. Yes. What we will be attempting to do from the Inspector General's Office is go out and look and assist some of the States. Obviously, with our resources, we will not be able to do it for all, but if there are critical areas, our staff will be participating in whatever teams or providing whatever services needed, which is the reason we will participate in the Puerto Rico team next week.

Mrs. Mink. Thank you, Mr. Chairman.

Chairman Hoekstra. How many DOL critical systems will be verified by the middle of October?

Mr. McMullen. By the middle of October?

Chairman Hoekstra. Yes.

Mr. McMullen. Six.

Chairman Hoekstra. And you have a plan to get the rest on target by March?

Mr. McMullen. Complete independent verification and validation will not be done until June of 1999. You cannot do all of the validation and verification until the systems have been made Year 2000 compliant, so there will be a lag, a few months from when all of the systems are compliant in March to the final independent verification and validation, which will be in June.

Chairman Hoekstra. Ms. Mink, you are leaving. Are you done? You are done, you have no more questions.

Mrs. Mink. No more questions.

Chairman Hoekstra. I have no more questions, either. We both have a genuine interest in this. We thank you for being here, and we look forward to working with you in whatever capacity we can to make sure we address this issue on a timely basis and that we hit the dates that we need to hit. So thank you very much.

The subcommittee will be adjourned.

[Whereupon, at 12:45 p.m., the subcommittee adjourned subject to the call of the Chair.]