The big issue for FM LOB

The Office of Management and Budget's plan to turn agency financial management upside down has left many large agencies with motion sickness.Large agencies shudder at the thought of outsiders performing their financial-management processes, and that fear is causing a delay in the across-the-board savings OMB has been hoping to achieve under the Financial Management Line of Business Consolidation effort.'Hosting, that's not scary. Someone else handling your business processes, that's scary,' said Danny Harris, Education Department deputy chief financial officer and team leader of the Financial Systems Oversight Team for the CFO Council. 'Nightmares of poor internal controls come to mind.'At least five large agencies have justified not moving to one of the four public-sector shared-services providers or a private-sector vendor in the past few years. Their justifications centered on the fact that they were already implementing a new system or upgrading an existing one that meets the governmentwide financial requirements (see story, Leaders want reporting on same page, Page 8).While large agencies have been tepid about using the FM LOB, small agencies are jumping on the shared-services-provider bandwagon in large numbers. And these smaller agencies may have something to teach their larger brethren when it comes to moving to SSPs.Small agencies have been taking advantage of shared services for years, even before OMB initiated the Financial Management Line of Business, said Anton Porter, deputy CFO at the Federal Energy Regulatory Commission and liaison for small agencies to the CFO Council.'Maintaining a financial management system requires maintaining an infrastructure that these agencies cannot maintain,' Porter said.Many experts in and outside of government predict that large agencies will have to gain more trust in shared-services providers before they get on board.'If you are a large agency, you don't see any real examples of a shared-services provider handling a large external customer that has a tremendous amount of volume and complexity in their financial-business processes,' Harris said.And there really are no commercial providers that handle a large volume of federal financial business transactions, he said.Despite the perception that shared-services providers cannot adequately handle large agencies' business, the providers can indeed handle the volume of transactions, locations, number of dollars and the number of heavy users, said Doug Bourgeois, director of the Interior Department's National Business Center, a financial-management and human resources shared-services provider. NBC, for example, is supporting Interior's move to Financial Business Modernization System, including operations and services, he said.'One large agency that moves to a shared-services provider will help give confidence to the others. Interior is one in the making. It is not without bumps in the road. We have chalked up two successful releases for two bureaus,' Bourgeois said.OMB directed in the fiscal 2006 budget request that agencies migrate their core financial services to providers when they upgrade their financial-management systems.OMB said that, to date, of the 25 CFO Act agencies, four have become SSPs and four have migrated to one of them, including the Environmental Protection Agency earlier this month (see story, Page 8). Currently, the Agriculture Department, Housing and Urban Development Department, and the Office of Personnel Management are in various phases of their FM LOB competitions, OMB said.Over the next 10 years, OMB anticipates that two to three of the CFO Act agencies annually will compete to migrate to a shared-services provider.Small agencies are more comfortable with SSPs because they have a history of using these providers.The Federal Accountability for Tax Dollars Act of 2002 placed the same financial reporting requirements on small agencies as on large CFO Act agencies, including requirements for financial statements and use of a financial system that meets federal requirements.'Without spending time and resources to acquire those things and build the infrastructure internally, they sought alternatives at the time, the current shared-service centers,' Porter said. 'It's business as usual for small agencies since these centers came on line. For large agencies, it's a huge sea change.'Small and mid-size organizations get a fairly quick and measurable benefit from using a shared-services provider, Bourgeois said.'The proportion of fixed cost investments if they wanted to do it themselves would become the entire project cost,' Bourgeois said.Despite some agency movement, OMB and FSIO need to be clearer in their guidance, both Harris and Porter said, but for different reasons. Large agencies need more clarity to understand why a shared provider makes good business sense for them. Small agencies want to know that their issues count.OMB and FSIO have detailed the movement of agencies to SSPs through multiple versions of its Migration Planning Guidance documents. Obviously, the more versions published, the clearer it becomes, Harris said.To that end, FSIO will update its Migration Planning Guidance later this month. It will include a revised Due Diligence Checklist that applies to both public and private providers, FSIO said.Over the next six months, OMB also will publish for comment information about standardization efforts.At the same time, OMB is working on an implementation strategy for adoption of these standards, streamlining migration procedures for small agencies and defining performance measures to assess services provided by SSPs.'We need to drive clarity and understand the value of it up to the senior leaders, the CFOs. If they don't see the value, you're not going to get much traction,' Harris said.For larger agencies, OMB and FSIO need to bolster the business case to move. Agencies have to have good financial, programmatic and management reasons to move, Harris said.'Large agencies not only have issues of control, developing and maintaining their own systems, they have standardization issues. Within a large agency, you may have bureaus that use different systems,' Porter said.When agencies decide to migrate, effective memoranda of understanding and service-level agreements should not only protect its current business but also improve it, he said.'If I'm going to outsource it, I'm not looking for the same level of quality and security. I'm looking for better, and to do it cheaper,' Harris said.For smaller agencies, competition is the main issue, Porter said.'We're much further along than our peers in larger agencies. There should be an exception or identification in the guidance that acknowledges that and provides for rules that make good business sense,' he said.He cited the example of a small agency wanting to migrate to a more current version of CGI Inc.'s Momentum software.'Why would it make good business sense to enter into a full and open competition when your main purpose is to upgrade your software when you're already with a shared-services provider?' Porter said.OMB and FSIO have heard about small agencies' problems, and he anticipates officials will work with small agencies to solve their issues.'Small agencies' needs are not driving immediate changes. It's the squeaky wheel and the bigger you are,' Porter said.The likely scenario is that FM LOB will prove to be good for small agencies; some large agencies will come aboard, some will not, Bourgeois said.'From a leadership standpoint, it may not be the right answer because economies of scale and effectiveness gains are not achieved until you migrate the service part,' he said. 'The transactions and operations folks are where you get maximum effectiveness and efficiency gain for the government.'