United States Government Accountability Office

GAO Report to Congressional Requesters

FINANCIAL 

MANAGEMENT 

SYSTEMS 

Additional Efforts 

Needed to Address 

Key Causes of 

Modernization 

Failures 

March 2006 

 

GAO-06-184 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 2006

FINANCIAL MANAGEMENT SYSTEMS

Additional Efforts Needed to Address Key 

Highlights of GAO-06-184, a report to Causes of Modernization Failures 

congressional requesters 

Billions of dollars have been spent 

governmentwide to modernize

financial management systems that 

have often exceeded budgeted 

cost, resulted in delays in delivery 

dates and did not provide the 

anticipated system functionality

when implemented. GAO was 

asked to identify (1) the key causes

for financial management system

implementation failures, and 

(2) the significant governmentwide

initiatives currently under way that 

are intended to address the key 

causes of financial management

system implementation failures. 

GAO was also asked to provide its 

views on actions that can be taken 

to help improve the management 

and control of agency financial 

management system modernization 

efforts. 

What GAO Recommends

To help reduce the risks associated 

with financial management system 

implementation efforts, GAO 

recommends that the Director of

OMB place a high priority on the 

four concepts and underlying key 

issues needed to help facilitate the

implementation of the financial 

management line of business and 

realignment initiatives across the 

government. OMB agreed with 

GAO’s recommendations and 

described its planned approach and 

steps underway to improve 

financial management system 

modernization efforts. 

GAO’s work has linked financial management system implementation 

failures to three recurring themes: (1) disciplined processes, (2) human 

capital management, and (3) other information technology (IT) management 

practices. The predictable result of not effectively addressing these three 

areas has been numerous agency systems throughout the federal 

government that did not meet their cost, schedule, and performance 

objectives. Problems related to disciplined processes included requirements 

management, testing, data conversion and system interfaces, and risk and 

project management. Human capital management issues included strategic 

workforce planning, human resources, and change management. Other areas 

of IT management identified as problems included enterprise architecture,

investment management, and information security. 

The Office of Management and Budget (OMB) has undertaken a number of 

initiatives to reduce the risks associated with acquiring and implementing 

financial management systems and addressing long-standing financial 

management problems. Some of these initiatives are in collaboration with 

others and are broad-based attempts to reform financial management 

operations governmentwide. First, OMB has developed and continues to 

evolve Federal Enterprise Architecture products and has required a mapping 

of agency architectures to this federal architecture. Another key OMB 

initiative is referred to as the financial management line of business which 

established centers of excellence to consolidate financial management 

activities for major agencies through cross-servicing arrangements. Finally, 

certain financial management activities and responsibilities have been 

reassigned to OMB, the Financial Systems Integration Office, and a Chief 

Financial Officers Council Committee. 

OMB’s initiatives for reforming financial management systems 

governmentwide could help address the key causes of system 

implementation failures, but further actions are needed to fully define and 

implement the processes necessary to successfully complete these 

initiatives. OMB has correctly recognized the need to implement financial 

management systems as a governmentwide solution, rather than individual 

agency stove-piped efforts designed to meet a given entity’s needs. Based on 

industry best practices, GAO believes that four concepts are integral to 

OMB’s approach and key to successfully implementing financial 

management systems: 

• a concept of operations provides the foundation, 

• standard business processes promote consistency, 

• a strategy for implementing the financial management line of 

business, and 

• disciplined processes to help ensure successful implementations.

GAO recognizes that implementing these concepts is a complex undertaking 

and raises a number of issues that have far-reaching implications for the 

government and private sector application service providers. 

www.gao.gov/cgi-bin/getrpt?GAO-06-184.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact McCoy 

Williams at (202) 512-9095 or Keith Rhodes 

at (202) 512-6412. 
Contents 

Letter 1

Results in Brief 3

Background 7

Agencies’ Failure to Follow Best Practices in Three Key Areas Has 

Hampered Successful Implementation of Financial Management 

Systems 16

Federal Initiatives Under Way to Improve System Implementations 27 

Broad-Based Actions Needed to Implement Financial Management 

Systems Governmentwide 35 

Conclusions 48

Recommendations for Executive Action 49 

Agency Comments and Our Evaluation 50 

Appendix I Scope and Methodology 52 

Appendix II IG Reports Reviewed 54 

Appendix III Disciplined Processes 56 

Appendix IV Comments from the Office of Management 

and Budget 68 

Appendix V GAO Contacts and Staff Acknowledgments 79 

Related GAO Products 80

Page i GAO-06-184 Financial Systems Modernization
Tables 

Table 1: Building Blocks for Financial Management Systems 

Governmentwide and Summary of Key Issues 6 

Table 2: Problems Related to Disciplined Processes in 

Implementing Financial Management Systems 17 

Table 3: Problems Related to Strategic Human Capital Management 

in Implementing Financial Management Systems 22 

Table 4: Problems Related to Other IT Management Practices in 

Implementing Financial Management Systems 25 

Table 5: OMB Initiatives to Reform Federal Financial Management 

System Implementations 28 

Table 6: Federal Enterprise Architecture Reference Models 29 

Figures 

Figure 1: Percentage of Effort Associated with Undisciplined

Projects 11

Figure 2: Relationship between Requirements Development and 

Testing 59

Page ii GAO-06-184 Financial Systems Modernization
Abbreviations 

CDC Centers for Disease Control and Prevention 

CFO chief financial officer 

CIO chief information officer

COTS commercial off-the-shelf 

Customs U.S. Customs and Border Protection 

DOD Department of Defense 

ERP enterprise resource planning 

FFMIA Federal Financial Management Improvement Act

FSIO Financial Systems Integration Office

HHS Department of Health and Human Services 

IEEE Institute of Electrical and Electronic Engineers 

IG inspector general 

Interior Department of the Interior 

IRS Internal Revenue Service 

IT information technology 

JFMIP Joint Financial Management Improvement Program 

NASA National Aeronautics and Space Administration

OFFM Office of Federal Financial Management 

OMB Office of Management and Budget 

OPM Office of Personnel Management 

SEI Software Engineering Institute 

VA Department of Veterans Affairs 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 

Page iii GAO-06-184 Financial Systems Modernization
United States Government Accountability Office

Washington, DC 20548 

March 15, 2006 

The Honorable Todd R. Platts 

Chairman 

The Honorable Edolphus Towns 

Ranking Minority Member 

Subcommittee on Government Management, 

 Finance, and Accountability 

Committee on Government Reform 

House of Representatives 

The federal government has long been plagued by financial management 

system modernization efforts that have failed to meet their cost, schedule, 

and performance goals. While agencies anticipate that the new systems 

will provide reliable, useful, and timely data to support managerial 

decision making, our work and that of others has shown that has often not 

been the case. Modernizing financial management systems is expensive 

but critical to instituting strong financial management as called for by the 

Chief Financial Officers (CFO) Act of 1990,

1

 Federal Financial

Management Improvement Act of 1996 (FFMIA),2

 and other financial 

management reform legislation. The CFO Act calls for the improvement of 

financial management systems in departments and major agencies 

throughout the federal government to achieve the systematic 

measurement of performance, the development of cost information, and 

the integration of program, budget, and financial information for 

management reporting. FFMIA builds on the foundation laid by the CFO 

Act by reflecting the need for CFO Act agencies to have financial 

management systems that can generate reliable, useful, and timely 

information with which to make fully informed decisions and to ensure 

accountability on an ongoing basis. 

Billions of dollars have been spent on developing and implementing 

financial management systems throughout the federal government. These 

systems support the interrelationships and interdependencies between 

budget, cost, and management functions. Financial management systems 

are critical for producing complete, reliable, timely, and consistent 

 1

Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15, 1990). 

2

Pub. L. No. 104-208, div. A., § 101(f), title VIII, 110 Stat. 3009, 3009-389 (Sept. 30, 1996). 

Page 1 GAO-06-184 Financial Systems Modernization
financial information for use by the executive branch of the federal 

government and the Congress in the financing, management, and 

evaluation of federal programs. Many efforts are under way to implement 

new core financial systems3

 and supporting financial management systems 

such as logistics, acquisition, and human resources. However, recent 

efforts to modernize financial management systems have often exceeded

budgeted cost, resulted in delays in delivery dates, and did not provide the 

anticipated system functionality and performance. For example, as we 

testified in May 2004,

4

 the National Aeronautics and Space Administration

(NASA) was on its third attempt in 12 years to modernize its financial 

management processes and systems and has spent about $180 million on 

two failed prior attempts to implement core financial systems. NASA’s 

current effort is estimated to cost about $983 million. In another case, the 

Navy largely wasted approximately $1 billion on four pilot Enterprise 

Resource Planning5

 (ERP) program efforts, without marked improvement

in its day-to-day operations, which resulted in four more stove-piped 

systems that did not enhance overall efficiency at the Department of 

Defense (DOD).6

 The Navy is now working on a new project to consolidate 

these four systems into one at an additional cost of $800 million. 

Because of your concern about failures at some agencies to successfully 

modernize or implement financial management systems, you asked us to 

 3

According to systems requirements issued by the former Joint Financial Management 

Improvement Program (JFMIP) which remain in effect, core financial systems are the

backbone of an agency’s integrated financial management system. They should provide

common processing routines, support common data for critical financial management 

functions affecting the entire agency, and maintain the required financial data integrity 

control over financial transactions, resource balances, and other financial systems. A core

financial system should support an agency’s general ledger, funds management, payments, 

receivables, and basic cost management functions. Also, the system should receive data 

from other financial-related systems, such as inventory and property systems, and from 

direct user input. It should also support financial statement preparation and financial 

performance measurement and analysis. 

4

GAO, National Aeronautics and Space Administration: Significant Actions Needed to 

Address Long-standing Financial Management Problems, GAO-04-754T (Washington,

D.C.: May 19, 2004). 

5

An ERP solution is an automated system using commercial off-the-shelf software and 

consisting of multiple, integrated functional modules that perform a variety of businessrelated tasks such as accounts payable, general ledger accounting, and supply chain 

management. 

6

GAO, DOD Business Systems Modernization: Navy ERP Adherence to Best Business

Practices Critical to Avoid Past Failures, GAO-05-858 (Washington, D.C.: Sept. 29, 2005). 

Page 2 GAO-06-184 Financial Systems Modernization
identify (1) the key causes for financial management system 

implementation failures, which we define as financial management system 

improvement efforts that did not meet cost, schedule, or performance 

goals, and (2) the significant governmentwide initiatives currently under 

way that are intended to address the key causes of financial management 

system implementation failures. You also asked us to provide our views on 

actions that can be taken to help improve the management and control of

agency financial management system modernization efforts. 

This report is based on our prior reports over the last 5 years that focused

on financial management system implementation efforts. We also 

reviewed selected inspector general (IG) reports dealing with financial

management system implementations. We interviewed key CFO Council 

and Office of Management and Budget (OMB) officials and reviewed their

existing oversight policies related to financial management systems as 

well as related current initiatives under way. We did not evaluate the 

federal government’s overall information technology (IT) strategy or 

whether a particular agency selected the most appropriate financial 

management system. Our work for this report was performed in 

Washington, D.C., from January 2005 through October 2005 in accordance 

with U.S. generally accepted government auditing standards. Details on 

our scope and methodology are included in appendix I and a list of related 

IG reports that we reviewed are included in appendix II. The background

section describes elements of IT management, including certain 

disciplined processes, human capital and other IT management practices, 

and appendix III provides additional information on the disciplined 

processes. Other related GAO reports are listed at the end of this report. 

From our analysis of prior reports, we identified several key causes of 

financial management system implementation failures within three 

recurring themes related to agencies not following best practices in 

(1) systems development and implementation efforts (commonly referred 

to as disciplined processes), (2) human capital management, and (3) other 

IT management practices. Although the implementation of any major 

system will never be a risk-free proposition, organizations that follow and 

effectively implement disciplined processes, along with effective human

capital and other IT management practices, can reduce these risks to 

acceptable levels. Our review of over 40 prior GAO and IG reports found 

problems associated with the failure to effectively implement disciplined 

processes in the areas of requirements management, testing, data 

conversion and system interfaces, risk management, and project 

management that can impact how a system functions and how it performs. 

Results in Brief 

Page 3 GAO-06-184 Financial Systems Modernization
For example, ill-defined or incomplete requirements have been identified 

by many experts as a root cause of system failure. As a case in point, we 

recently reported7

 that the initial deployment of a new Army system 

intended to improve depot operations was still not meeting user needs, 

and the Army expected to invest about $1 billion to fully deploy the 

system. One reason that users had not been provided with the intended 

systems capabilities was a breakdown in the requirements management 

process. As a consequence, the Army implemented error-prone, timeconsuming manual workarounds to minimize disruption to critical 

operations, and the financial management operations continued to be 

affected by systems problems. Human capital management problems were 

also identified as critical to successfully implementing a new financial

management system. Agencies have faced challenges in implementing 

financial management systems due to human capital management issues 

related to strategic workforce planning, human resources, and change

management. By not identifying staff with the requisite skills to implement 

such systems and by not identifying gaps in needed skills and filling them, 

agencies reduced their chances of successfully implementing and 

operating new financial management systems. Finally, deficiencies in 

other IT management practices have hindered modernization efforts, 

including problems related to enterprise architecture, investment 

management, and information security management practices. 

As the federal organization with key responsibility for federal financial

management systems, OMB has undertaken a number of initiatives 

intended to reduce the risks associated with acquiring and implementing 

financial management systems and addressing long-standing financial 

management problems. Some of these initiatives are in collaboration with 

the Chief Information Officers (CIO) and CFO councils. OMB has 

recognized the need for standardization and including key stakeholders in

new work groups to develop systems requirements and processes. While 

OMB has taken steps to accomplish its initiatives, they are generally at the 

early stages of implementation, and a firm foundation to address the longstanding problems that have impeded success has not yet been

established. OMB initiatives are under way in the following key areas: 

 7

GAO, Army Depot Maintenance: Ineffective Oversight of Depot Maintenance Operations

and System Implementation Efforts, GAO-05-441 (Washington, D.C.: June 30, 2005). 

Page 4 GAO-06-184 Financial Systems Modernization
• Federal Enterprise Architecture–to build a comprehensive businessdriven (rather than technology focused) blueprint of the entire federal 

government.

• Lines of Business–to develop business-driven common solutions that 

span across the federal government, such as consolidating duplicative

financial management systems by using centers of excellence to 

provide services. 

• Joint Financial Management Improvement Program (JFMIP)8

Realignment–to realign responsibilities for overseeing, developing, 

testing, and publishing core financial systems requirements, including 

the development of standard business processes. 

OMB has developed the Federal Enterprise Architecture, which continues 

to evolve, to maximize technology investments, but as we have previously 

testified, questions remain about the Federal Enterprise Architecture, 

including how it relates to agencies’ enterprise architectures.9

 Regarding 

the financial management line of business, OMB has developed an 

approach for outsourcing financial management systems to a limited 

number of application service providers,10 such as OMB designated centers 

of excellence or private sector entities. With this initiative, OMB has 

correctly recognized that enhancing the government’s ability to implement 

financial management systems that are capable of providing accurate, 

reliable, and timely information on the results of operations needs to be 

addressed as a governmentwide solution, rather than individual agency

stove-piped efforts designed to meet a given entity’s needs. This is a 

significant change in how agencies acquire new systems and raises 

numerous complex issues that have far-reaching implications for the 

government and private sector application service providers. Therefore, 

 8

JFMIP was formed under the authority of the Budget and Accounting Procedures Act of

1950, Pub. L. No. 81-784, § 111(f), 64 Stat. 832, 835 (Sept. 12, 1950) (codified at 31 U.S.C. § 

3511), as a joint and cooperative undertaking of GAO, the U.S. Department of the Treasury, 

OMB, and Office of Personnel Management (OPM), working in cooperation to improve

financial management practices in the federal government. Leadership and program

guidance were provided by the four JFMIP principals–the Comptroller General of the 

United States, the Secretary of the Treasury, and the Directors of OMB and OPM. 

9

GAO, Information Technology: The Federal Enterprise Architecture and Agencies’

Enterprise Architectures Are Still Maturing, GAO-04-798T (Washington, D.C.: May 19, 

2004). 

10An application service provider is a third-party entity that manages and distributes

software-based services and solutions to customers across a wide area network from a 

central data center. In essence, application service providers are a way for agencies to 

outsource some or almost all aspects of their information technology needs.

Page 5 GAO-06-184 Financial Systems Modernization
strong executive support will be essential for these modernization efforts. 

In addition, the actions resulting from the realignment of the JFMIP in 

December 2004 can help streamline financial management improvement 

efforts by providing additional policy and oversight. However, OMB has 

not yet fully defined and implemented the processes necessary to 

successfully complete the financial management line of business and 

JFMIP realignment initiatives. 

Specifically, based on industry best practices, we identified four key 

concepts that are not yet fully developed in OMB’s initiatives and related 

processes. Careful consideration of these four concepts, each one building 

upon the next, will be integral to the success of OMB’s initiatives and will 

help break the cycle of failure in implementing financial management 

systems. The four concepts are: (1) developing a concept of operations, 

(2) defining standard business processes, (3) developing a strategy for 

ensuring that agencies are migrated to a limited number of application 

service providers in accordance with OMB’s stated approach, and 

(4) defining and effectively implementing disciplined processes necessary 

to properly manage the specific projects. Table 1 summarizes the key

issues raised in each of the four areas. 

Table 1: Building Blocks for Financial Management Systems Governmentwide and Summary of Key Issues

Building blocks for financial 

management systems governmentwide Key issues to be addressed

Concept of operations • Defining financial management systems for consistent use in the federal 

government 

• Establishing how development will result in a governmentwide solution rather than 

individual agency stove-piped efforts 

• Linking to Federal Enterprise Architecture in user-friendly terms 

• Obtaining reliable information on the costs of federal financial management system 

investments 

Standard business processes • Developing governmentwide standard business processes to meet the needs of 

federal agencies based on best practices 

• Encouraging agencies to adopt new processes, rather than automating old ways of 

doing business

• Providing consistency across government agencies and application service

providers 

• Supporting the processes of agencies that have unique needs 

Page 6 GAO-06-184 Financial Systems Modernization
Building blocks for financial 

management systems governmentwide Key issues to be addressed

Strategy for implementing the financial 

management line of business 

• Assisting agencies in adopting a change management strategy that reduces the 

risks of moving to this approach 

• Focusing agency financial management system investment decisions on the 

benefits of standard processes and application service providers 

• Facilitating the decision-making process used by agencies to select a provider 

• Incorporating strategic workforce planning 

Disciplined processes • Incorporating industry standards and best practices into governmentwide guidance 

related to financial management system implementation efforts 

• Reducing the risks and costs associated with data conversion and interface efforts 

• Developing an oversight process 

Source: GAO.

While OMB has taken a number of steps to address these issues, more 

remains to be done to facilitate the implementation of the financial 

management line of business and JFMIP realignment initiatives across the 

government. We make recommendations in this report regarding fully 

integrating the four concepts into OMB’s approach to help reduce the risks 

associated with financial management system implementation efforts. In 

written comments on a draft of this report, the Controller of OMB agreed 

with our recommendations and described the approach and steps that 

OMB is taking to improve financial management system modernization 

efforts. OMB’s comments are discussed further in the Agency Comments 

and Our Evaluation section and reprinted in appendix IV. 

OMB plays a central role in setting federal financial management policy

and guidance. The CFO Act of 1990 established OMB’s Office of Federal

Financial Management (OFFM), which has responsibility to provide 

overall direction and leadership to the executive branch on financial 

management matters by establishing financial management policies and 

requirements, and by monitoring the establishment and operation of 

federal government financial management systems. Among the key issues 

OFFM addresses in addition to financial management systems, are agency

and governmentwide financial reporting, asset management, grants 

management, improper payments, performance measurement, single 

audits, and travel and purchase cards. Within OFFM, the Federal Financial 

Systems Branch is responsible for orchestrating all of the elements of the 

financial systems governmentwide into a coherent, coordinated 

architecture. These elements include

Background 

Page 7 GAO-06-184 Financial Systems Modernization
• agency financial management systems and JFMIP standards; 

• interfaces between agency financial systems and other systems that 

support business processes (e.g., human resources systems, 

procurement systems, databases supporting performance 

management); 

• common financial management services, including e-Travel, e-Learning, 

Contractor Central Registry, Intragovernmental Payment and 

Collection System, and Electronic Certification System; and 

• governmentwide accounting and other data consolidation systems. 

Another office in OMB, the Office of Electronic Government and 

Information Technology, has responsibility for providing overall 

leadership and direction to the executive branch on electronic 

government. In particular, this OMB office oversees implementation of IT

throughout the federal government, including monitoring and consulting 

on agency technology efforts; advising the OMB Director on the 

performance of IT investments, as well as identifying opportunities for 

joint agency and governmentwide IT projects; and overseeing the 

development of enterprise architectures within and across agencies, which 

is being fulfilled through the Federal Enterprise Architecture.11 This office 

also shares statutory IT management responsibilities with the Office of 

Information and Regulatory Affairs, which OMB was required to establish 

under the Paperwork Reduction Act of 1995.12

Finally, OMB is the preparer of the President’s budget and provides 

instructions to executive branch agencies to submit budget-related 

information in accordance with the requirements of OMB Circular 

No. A-11, Preparation, Submission and Execution of the Budget. OMB is 

responsible for reviewing and evaluating IT spending across the federal

government and uses the IT spending information submitted by the 

agencies during the budget formulation process to review requests for 

agency financial management systems and other IT spending. Major 

agency IT investments are reported to OMB individually. OMB Circular 

No. A-11 defines a major IT investment as a system or project that requires

special management attention because of its importance to an agency’s 

mission, or has significant program or policy implications, among other 

 11OMB was required to establish this office under the E-Government Act of 2002, Pub. L. 

No. 107-347, § 101(a), 116 Stat. 2899, 2902-05 (Dec. 17, 2002) (codified at 44 U.S.C. § 

3602(a), (f)). 

12Pub. L. No. 104-13, § 2, 109 Stat. 163, 166 (May 22, 1995) (codified at 44 U.S.C. § 3503). 

Page 8 GAO-06-184 Financial Systems Modernization
criteria. Financial management systems costing more than $500,000 

annually are considered major IT investments. OMB Circular No. A-11 also

requires agencies to use Exhibit 300, Capital Asset Plan and Business 

Case, to describe the business case for the investment, which serves as the 

primary means of justifying IT investment proposals as well as managing 

IT investments once they are funded. 

Elements of IT 

Management 

Best practices are tried and proven methods, processes, techniques, and

activities that organizations define and use to minimize risks and maximize 

chances for success. As we have previously reported,13 using best practices

related to IT acquisitions can result in better outcomes—including cost 

savings, improved service and product quality, and ultimately, a better 

return on investment. We and others, such as the Software Engineering 

Institute (SEI),14 have identified and promoted the use of a number of best 

practices associated with acquiring IT systems. For the purposes of this 

report, we have identified various elements of IT management and 

categorized them as disciplined processes, human capital and other IT 

management practices that are critical elements for minimizing the risks 

related to financial management system implementations. These areas are 

interrelated and interdependent, collectively providing an agency with a 

comprehensive understanding both of current business approaches and of

efforts (under way or planned) to change these approaches and a means to

implement those changes. Understanding the relationships among these 

areas can help an agency determine how it is applying its resources, 

analyze how to redirect these resources in the face of change, implement 

such redirections, and measure success. With this decision-making 

capability, the agency is better positioned to deploy financial management 

systems and direct appropriate responses to unexpected changes in its 

environment. The following sections provide additional background 

information on the key elements of IT management discussed in this 

report, including disciplined processes, human capital and other IT 

management practices. 

 13GAO, Information Technology: DOD’s Acquisition Policies and Guidance Need to 

Incorporate Additional Best Practices and Controls, GAO-04-722 (Washington, D.C.: July 

30, 2004). 

14The SEI is a federally funded research and development center operated by Carnegie 

Mellon University and sponsored by DOD. The SEI objective is to provide leadership in 

software engineering and in the transition of new software engineering technology into

practice. 

Page 9 GAO-06-184 Financial Systems Modernization
Disciplined processes are fundamental to successful systems 

implementation efforts and have been shown to reduce the risks 

associated with software development and acquisition to acceptable 

levels. A disciplined software development and acquisition process can 

maximize the likelihood of achieving the intended results (performance) 

within established resources (costs) on schedule. Although there is no 

standard set of practices that will ever guarantee success, several 

organizations, such as the SEI and the Institute of Electrical and 

Electronic Engineers (IEEE),15 as well as individual experts, have 

identified and developed the types of policies, procedures, and practices 

that have been demonstrated to reduce development time and enhance 

effectiveness. The key to having a disciplined system development effort is 

to have disciplined processes in multiple areas, including requirements 

management, testing, data conversion and system interfaces, 

configuration, risk and project management, and quality assurance. 

Effective processes should be implemented in each of these areas 

throughout the project life cycle because change is constant. Effectively 

implementing the disciplined processes necessary to reduce project risks 

to acceptable levels is difficult to achieve because a project must 

effectively implement several best practices, and inadequate 

implementation of any one may significantly reduce or even negate the 

positive benefits of the others. 

Disciplined Processes 

Figure 1 shows how organizations that do not effectively implement the 

disciplined processes lose the productive benefits of their efforts as a 

project continues through its development and implementation cycle. 

Although undisciplined projects show a great deal of what appears to be 

productive work at the beginning of the project, the rework associated 

with defects begins to consume more and more resources. In response, 

processes are adopted in the hopes of managing what later turns out, in 

reality, to have been unproductive work. Generally, these processes are 

“too little, too late” because sufficient foundations for building the systems 

were not done or not done adequately. Experience in both the private 

sector and the government has shown that projects for which disciplined 

 15The IEEE is a nonprofit, technical professional association that develops standards for a 

broad range of global industries, including the IT and information assurance industries and

is a leading source for defining best practices. 

Page 10 GAO-06-184 Financial Systems Modernization
processes are not implemented at the beginning then must be 

implemented later, when it takes more time and they are less effective.

16

Figure 1: Percentage of Effort Associated with Undisciplined Projects 

Percent of effort

Time

100

0

Lucky projects

finish here

Unlucky projects

get stuck here

Visible progress (coding)

Thrashing (unplanned rework and wasted effort)

Planning and process management

Thrashing and planning combine to limit ability to make any visible progress

Source: Reproduced by permission from Steve McConnell, Professional Software Development: Shorter Schedules, Higher Quality

Products, More Successful Projects, Enhanced Careers (Boston, Mass.: Pearson Education, Inc., 2004).

As shown in figure 1, a major consumer of project resources in 

undisciplined efforts is rework (also known as thrashing). Rework occurs 

when the original work has defects or is no longer needed because of 

changes in project direction. Disciplined organizations focus their efforts 

on reducing the amount of rework because it is expensive. Fixing a 

requirements defect after the system is released costs anywhere from 10 to 

100 times the cost of fixing it when the requirements are defined.17 Projects 

 16Steve McConnell, Rapid Development: Taming Wild Software Schedules (Redmond, 

Wash.: Microsoft Press, 1996). 

17Steve McConnell, Code Complete, Second Edition (Redmond, Wash.: Microsoft Press,

2004). 

Page 11 GAO-06-184 Financial Systems Modernization
that do not successfully address rework will eventually spend even more 

effort on rework and the associated processes rather than on productive 

work. In other words, the project will continually require reworking items. 

People—human capital—are a critical element to transforming 

organizations to meet the challenges of the 21st century. Recognizing this, 

we first added strategic human capital management as a governmentwide 

high-risk issue in January 2001,18 and although progress has been made, 

continued to include it on the latest high-risk list issued in January 2005.19

Strategic human capital management for financial management projects 

includes organizational planning, staff acquisition, and team development. 

Human capital planning is necessary for all stages of the system

implementation. It is important that agencies incorporate strategic 

workforce planning by (1) aligning an organization’s human capital 

program with its current and emerging mission and programmatic goals 

and (2) developing long-term strategies for acquiring, developing, and 

retaining an organization’s total workforce to meet the needs of the future. 

This incorporates a range of activities from identifying and defining roles 

and responsibilities, to identifying team members, to developing individual 

competencies that enhance performance. It is essential that an agency

take the necessary steps to ensure that it has the human resources to 

design, implement, and operate a financial management system. In 

addition, organizational change management, which is the process of 

preparing users for the business process changes that usually accompany 

implementation of a new system, is another important human capital 

element. 

Human Capital Management 

Strategic workforce planning is essential for achieving the mission and 

goals of financial management system projects. As we have reported,20

there are five key principles that strategic workforce planning should 

address: 

 18GAO, High-Risk Series: An Update, GAO-01-263 (Washington, D.C.: Jan. 2001). 

19GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: Jan. 2005). 

20GAO, Human Capital: Key Principles for Effective Strategic Workforce Planning, 

GAO-04-39 (Washington, D.C.: Dec. 11, 2003).

Page 12 GAO-06-184 Financial Systems Modernization
• Involve top management, employees, and other stakeholders in 

developing, communicating, and implementing the strategic workforce 

plan. 

• Determine the critical skills and competencies that will be needed to 

achieve current and future programmatic results. 

• Develop strategies that are tailored to address gaps in the number, 

deployment, and alignment of human capital approaches for enabling 

and sustaining the contributions of all critical skills and competencies. 

• Build the capability needed to address administrative, educational, and 

other requirements important to support workforce planning strategies.

• Monitor and evaluate the agency’s progress toward its human capital 

goals and the contribution that human capital results have made 

toward achieving programmatic results. 

Having adequate and sufficient human resources with the requisite 

training and experience to successfully implement a financial management 

system is another critical success factor. According to OMB, qualified 

federal IT project managers are our first line of defense against the cost 

overruns, schedule slippage, and poor performance that threaten agencies’ 

ability to deliver efficient and effective services to citizens. In July 2004, 

OMB issued a memorandum21 to help agencies comply with fiscal year 

2005 budget guidance that instructed agencies to ensure “by September 30, 

2004, all major projects are managed by project managers qualified in 

accordance with CIO Council guidance.”22 The CIO Council’s Federal IT 

Project Manager Guidance Matrix and Federal IT Project Management 

Validation define levels of complexity for IT projects/systems, identify 

appropriate competencies and experience, suggest education and training

sources, and serve as a tool for validating IT project manager credentials.

IT project managers are expected to achieve and demonstrate baseline 

skills in applicable competency areas listed in the Office of Personnel 

Management (OPM) Interpretive Guidance for Project Manager 

Positions. The OMB memorandum also required agencies to submit a plan 

to meet the guidance on project manager qualifications and document the

approach, milestones, and schedule. The plans should also follow OPM’s 

 21OMB, Information Technology Project Manager Qualification Guidance, M-04-19 

(Washington, D.C.: July 21, 2004). 

22In July 2004, the CIO Council’s Workforce and Human Capital for Information Technology 

Committee released the Federal IT Project Manager Guidance Matrix. The matrix 

identified the competencies, experience, education, training, and development that

managers should possess for projects with three different levels of complexity. 

Page 13 GAO-06-184 Financial Systems Modernization
Workforce Planning Model and Human Capital Assessment and 

Accountability Framework. 

Changing an organization’s business processes is not an easy task. 

Managing culture and process change in large, diverse, organizationally 

and geographically decentralized agencies is a much greater challenge. 

Frequently, the greatest difficulties lie not in managing the technical or 

operational aspects of change, but in managing the human dimensions of

change. Some experts caution that unless planning and accountability for 

change management are given a separate focus, the efforts will not be 

managed well. Management roles in implementing a new system include 

establishing business goals, realistic expectations, accountability, and 

leading cultural change necessary to accept the capabilities of a new 

system. During the implementation phase especially, agency executives 

must be in the forefront in dealing with the social, psychological, and 

political resistance to changing the way work is done. Executives must 

also recognize that their own roles and responsibilities may need to 

undergo change as well.

Weaknesses in other IT management processes also increase the risks 

associated with financial management system implementation efforts. 

Developing an enterprise architecture, establishing IT investment 

management policies, and addressing information security weaknesses are

critical to ensuring successful system implementation. 

Other IT Management Practices 

OMB Circular No. A-130,23 which establishes executive branch policies 

pursuant to the Paperwork Reduction Act of 199524 and the Clinger-Cohen 

Act of 199625 among other laws, requires agencies to use architectures. A 

well-defined enterprise architecture provides a clear and comprehensive 

picture of the structure of any enterprise by providing models that 

describe in business and technology terms how the entity operates today 

and predicts how it will operate in the future. It also includes a plan for 

transitioning to this future state. Enterprise architectures are integral to 

managing large-scale programs. Managed properly, an enterprise 

 23OMB Circular No. A-130, Management of Federal Information Resources (Washington,

D.C.: Nov. 28, 2000). 

24Paperwork Reduction Act of 1995, Pub. L. No. 104-13, 109 Stat. 163 (May 22, 1995) 

(codified at 44 U.S.C. §§ 3501-3521). 

25Clinger-Cohen Act of 1996, Pub. L. No. 104-106, div. E, § 5125, 110 Stat. 679, 684-85 (Feb. 

10, 1996) (codified at 40 U.S.C. § 11315 (b)). 

Page 14 GAO-06-184 Financial Systems Modernization
architecture can clarify and help optimize the interdependencies and 

relationships among an organization’s business operations and the 

underlying IT infrastructure and applications that support these 

operations. Employed in concert with other important management 

controls, architectures can greatly increase the chances that organizations’ 

operational and IT environments will be configured to optimize mission 

performance. To aid agencies in assessing and improving enterprise 

architecture management, we issued guidance establishing an enterprise 

architecture management framework.26 The underpinning of this

framework is a five-stage maturity model outlining steps toward achieving

a stable and mature process for managing the development, maintenance, 

and implementation of an enterprise architecture.

IT investment management provides for the continuous identification, 

selection, control, life-cycle management, and evaluation of IT 

investments. The Clinger-Cohen Act lays out specific aspects of the 

process that agency heads are to implement to maximize the value of the 

agency’s IT investments. In addition, OMB and GAO have issued guidance27

for agencies to use in implementing the Clinger-Cohen Act requirements 

for IT investment management. For example, we issued guidance 

establishing an IT investment management framework.28 This framework is 

also a maturity model composed of five progressive stages of maturity that 

an agency can achieve in its IT investment management capabilities. These 

stages range from creating investment awareness to developing a 

complete investment portfolio to leveraging IT for strategic outcomes. The 

framework can be used both to assess the maturity of an agency’s 

investment management processes and as a tool for organizational 

improvement. 

The Federal Information Security Management Act of 200229 provides the 

overall framework for ensuring the effectiveness of information security

controls that support federal operations and assets and requires agencies 

 26GAO, Information Technology: A Framework for Assessing and Improving Enterprise 

Architecture Management (Version 1.1), GAO-03-584G (Washington, D.C.: April 2003). 

27For example, see GAO, Information Technology Investment Management: A Framework 

for Assessing and Improving Process Maturity (Version 1.1), GAO-04-394G (Washington,

D.C.: March 2004); and OMB Circular No. A-130. 

28GAO-04-394G. 

29Pub. L. No. 107-347, tit. III, § 301, 116 Stat. 2946, 2946-55 (Dec. 17, 2002) (codified at 44 

U.S.C. §§ 3541-3549). 

Page 15 GAO-06-184 Financial Systems Modernization
and OMB to report annually to the Congress on their information security 

programs. OMB Circular No. A-130 also requires agencies to protect 

information commensurate with the risk and magnitude of the harm that 

would result from the loss, misuse, or unauthorized access to or 

modification of such information. The reliability of operating 

environments, computerized data, and the systems that process, maintain, 

and report these data is a major concern to federal entities that have

distributed networks that enable multiple computer processing units to 

communicate with each other. Such distributed networks increase the risk 

of unauthorized access to computer resources and possible data 

alteration. Effective departmentwide information security controls will 

help reduce the risk of loss due to errors, fraud, and other illegal acts, 

disasters, or incidents that cause systems to be unavailable. Inadequate 

security and controls can adversely affect the reliability of the operating 

environments in which financial management systems and their 

applications operate. 

We reviewed numerous prior GAO and IG reports and identified several 

problems related to agencies’ implementation of financial management 

systems in three recurring and overarching themes: disciplined processes, 

human capital and other IT management practices. Simply put, the 

agencies were not following best practices in these three critical areas. 

The predictable result of not effectively addressing these three areas has 

been numerous agency systems throughout the federal government that 

did not meet their cost, schedule, and performance objectives. We have 

issued governmentwide reports on other IT management practices 

including agencies’ enterprise architecture,30 IT investment management,31

and information security32 and therefore will not be addressing those 

issues further in this report. However, broad-based actions are needed to

address the problems repeatedly experienced at the agencies as they 

continue to struggle to implement new financial management systems. 

Many of the systems we reviewed had at least one problem in each of the 

Agencies’ Failure to 

Follow Best Practices 

in Three Key Areas 

Has Hampered 

Successful 

Implementation of 

Financial 

Management Systems 

 30GAO, Information Technology: Leadership Remains Key to Agencies Making Progress 

on Enterprise Architecture Efforts, GAO-04-40 (Washington, D.C.: Nov. 17, 2003). 

31GAO, Information Technology Management: Governmentwide Strategic Planning, 

Performance Measurement, and Investment Management Can Be Further Improved, 

GAO-04-49 (Washington, D.C.: Jan. 12, 2004).

32GAO, Information Security: Agencies Need to Implement Consistent Processes in

Authorizing Systems for Operation, GAO-04-376 (Washington, D.C.: June 28, 2004). 

Page 16 GAO-06-184 Financial Systems Modernization
three critical areas. While there was some overlap in these three areas, we

selected examples that best illustrate the specific problems in each area. 

Disciplined Processes 

Have Not Been Fully Used 

From our review of over 40 prior reports, we identified a number of key 

problem areas in disciplined processes related to requirements 

management, testing, data conversion and system interfaces, risk 

management, and project management activities. Inadequate 

implementation of disciplined processes can manifest itself in many ways 

when implementing a financial management system and the failure to 

properly implement disciplined processes in one area can undermine the 

work in all the other areas and cause significant problems. Table 2 

summarizes and provides examples for some of the problems we identified 

from prior reports that can be expected when agencies do not effectively 

implement the disciplined processes necessary to manage their financial 

management system implementation projects. 

Table 2: Problems Related to Disciplined Processes in Implementing Financial Management Systems 

Agency/related report(s) Key problem area(s) Observations

U.S. Customs and Border Protection 

(Customs) 

(GAO-05-267) 

Project management More than 3 years into its second attempt, Customs had 

relaxed system quality standards and started new 

phases despite system defects. Correcting such defects 

would consume resources (e.g., people) at the expense 

of later system releases. 

Department of Defense 

• Army Logistics Modernization Program 

(GAO-05-441) 

• Defense Integrated Military Human 

Resources System 

(GAO-05-189) 

• Navy Enterprise Resource Planning 

(GAO-05-858) 

Requirements

Testing 

Data conversion and system

 interfaces 

Requirements

Project management 

Data conversion and system

 interfaces 

Project management 

Tobyhanna Army Depot could not accurately report on 

its financial operations, which also affect the depot’s 

ability to set prices. Subsequent deployments of the 

system costing $1 billion have been delayed.

DOD accepted the design of the first system phase in 

November 2004 and was proceeding with development, 

but program responsibility was diffused and 

requirements were not complete. 

The Navy largely wasted about $1 billion in four pilot 

efforts that were not interoperable and started a new 

project to converge them into a single program which is 

expected to cost another $800 million. 

Department of Health and Human 

Services (HHS) 

(GAO-04-1008) 

(GAO-04-1089T) 

Requirements

Testing 

Data conversion and system

 interfaces 

Risk management 

Project management 

HHS had not developed sufficient quantitative 

measures for determining the impact of many of the 

process weaknesses and did not determine until less 

than 1 month before the scheduled deployment date 

that the $210 million project should be delayed by 6 

months. 

Page 17 GAO-06-184 Financial Systems Modernization
Agency/related report(s) Key problem area(s) Observations

Department of the Interior (Interior) 

(Bureau of Indian Affairs) 

(GAO/AIMD-00-259) 

Requirements

Testing 

Data conversion and system 

 interfaces 

Over 5 years after the project was first fielded, only one 

function was considered successfully implemented, and 

Interior was looking for a replacement system. 

Internal Revenue Service (IRS) 

(GAO-02-356) 

(GAO-05-46) 

(GAO-05-566) 

(GAO-05-774) 

Risk management 

Project management 

Total life-cycle costs for full deployment of the initial 

release of a new core accounting system had increased 

by almost $74 million, and project completion had been 

delayed by 15 months because of an inability to timely 

resolve key system design, integration, and 

performance issues. 

National Aeronautics and Space 

Administration

(GAO-04-255) 

(GAO-04-754T) 

(GAO-05-799R) 

Requirements

Testing 

Project management 

After a total of 12 years and about $180 million on two 

prior failed efforts, NASA was on its third attempt at 

modernizing its financial systems and still could not 

produce auditable financial statements or specific 

information for managing NASA projects. 

Office of Personnel Management 

(GAO-05-237) 

Requirements

Risk management 

Project management 

OPM planned to award the contract for a system to 

process retirement claims at the end of January 2005 

with implementation by the end of fiscal year 2008 at a 

total cost of about $294 million despite the lack of 

disciplined processes in key areas. OPM had not 

awarded the contract at the end of our field work. 

Department of Transportation

(Transportation IG, FI-2001-074 and FI2005-009) 

Testing 

Data conversion and system 

 interfaces 

The Department of Transportation transitioned to a new 

accounting system in fiscal year 2004, but the system 

was not able to account for expected loan repayments 

from grantees, which were valued at $604 million on 

September 30, 2004. 

Department of Veterans Affairs (VA) 

(VA IG, 04-01371-177) 

Testing 

Data conversion and system

 interfaces 

Project management 

Patient services and medical center operations were 

interrupted when supplies were not available because 

of inaccurate inventory data that had been transferred 

to its new financial system. After numerous problems, 

VA halted implementation of the system for which it 

reported to have spent almost $250 million. 

Source: GAO analysis based on prior GAO and IG reports. 

The following provides more specific details on three of the examples of 

financial management system implementation problems related to the lack 

of disciplined processes. 

• In May 2004, we first reported33 our concerns with the requirements 

management and testing processes used by the Army in the 

implementation of the Logistics Modernization Program and the 

problems being encountered after it became operational in July 2003. 

 33GAO, DOD Business Systems Modernization: Billions Continue to Be Invested with

Inadequate Management Oversight and Accountability, GAO-04-615 (Washington, D.C.: 

May 27, 2004).

Page 18 GAO-06-184 Financial Systems Modernization
At the time of our initial report, the Army decided that future 

deployments would not go forward until they had reasonable assurance 

that the deployed system would operate as expected for a given 

deployment. However, as we reported in June 2005,34 the Army had not 

effectively addressed its requirements management and testing 

problems and data conversion weaknesses had hampered the Army’s 

ability to address the problems that need to be corrected before the 

system can be fielded to other locations. For example, the system 

cannot properly recognize revenue nor bill customers. Data conversion 

problems resulted in general ledger account balances that were not 

properly converted to the new system in July 2003, and these 

differences remained unresolved almost 18 months later. These 

weaknesses adversely affected the Army’s ability to set the prices for 

the work performed at the Tobyhanna Army Depot. In addition, data 

conversion problems resulted in excess items being ordered and 

shipped to Tobyhanna. As noted in our June 2005 report, three 

truckloads of locking washers (for bolts) were mistakenly ordered and 

received, and subsequently returned, because of data conversion 

problems. As a result of the problems, the Army has implemented 

error-prone, time-consuming manual workarounds as a means to 

minimize disruption to critical operations; however, the depot’s

financial management operations continue to be adversely affected by

systems problems. 

• NASA has struggled to implement a modern integrated financial 

management system. After two failed efforts over 12 years and about 

$180 million, NASA embarked on a third effort that is expected to cost 

about $983 million. We have previously identified problems and made 

recommendations to NASA related to requirements, testing, and project 

management as well as problems with human capital and other IT 

management issues related to this effort. For example, NASA had not 

implemented quantitative metrics to help gauge the effectiveness of its 

requirements management process. Such metrics would be particularly 

important for NASA to address the root causes of system defects and 

be reasonably assured that its processes would result in a system that 

meets its business needs. However, in our September 2005 report,35 we 

found that overall progress implementing our recommendations had 

 34GAO-05-441. 

35GAO, Business Modernization: Some Progress Made toward Implementing GAO 

Recommendations Related to NASA’s Integrated Financial Management Program, 

GAO-05-799R (Washington, D.C.: Sept. 9, 2005). 

Page 19 GAO-06-184 Financial Systems Modernization
been slow. From our perspective, of the 45 recommendations we made 

in prior reports, NASA had taken sufficient action to close 3 

recommendations and had partially implemented 13, but 29 

recommendations remained open. Furthermore, in November 2004,

NASA’s independent auditor reported that NASA’s new financial 

system, which was implemented in June 2003, could not produce 

auditable financial statements for fiscal year 2004 and did not comply 

with the requirements of FFMIA.36 Key areas of concern included the 

core financial module’s inability to (1) produce transaction-level detail 

in support of financial statement account balances, (2) identify 

adjustments or correcting entries, and (3) correctly and consistently 

post transactions to the right accounts. 

• In August 2004, the VA IG reported37 that the effect of transferring 

inaccurate data to its new core financial system at a pilot location 

interrupted patient care and medical center operations. This raised 

concerns that similar conversion problems would occur at other VA 

facilities if the conditions identified were not addressed and resolved 

nationwide prior to roll out. Some of the specific conditions the IG 

noted were that contracting and monitoring of the project were not 

adequate, and the deployment of the new system encountered multiple 

problems including those related to software testing, data conversion 

and system interfaces, and project management. When the new 

financial system was deployed at the pilot location in October 2003, it 

did not function as project managers had expected because of

inaccurate or incomplete vendor and inventory system data. As a result 

of these problems, patient care was interrupted by supply outages and 

other problems. The inability to provide sterile equipment and needed 

supplies to the operating room resulted in the cancelation of 81 elective 

surgeries for a week in both November 2003 and February 2004. In 

addition, the operating room was forced to operate at two-thirds of its 

prior capacity. Because of the serious nature of the problems raised 

with the new system, VA management decided to focus on transitioning 

back to the previous financial management software at the pilot 

 36Section 803 of FFMIA requires the major departments and agencies covered by the CFO 

Act to implement and maintain financial management systems that comply substantially 

with (1) federal financial management systems requirements, (2) applicable federal 

accounting standards, and (3) the U.S. Government Standard General Ledger at the 

transaction level. 

37Department of Veterans Affairs Office of Inspector General, Issues at VA Medical Center

Bay Pines, Florida and Procurement and Deployment of the Core Financial and 

Logistics System, Report 04-01371-177 (Washington, D.C.: Aug. 11, 2004). 

Page 20 GAO-06-184 Financial Systems Modernization
location and assemble a senior leadership team to examine the results 

of the pilot and make recommendations to the VA Secretary regarding 

the future of the system. 

Human Capital 

Management Problems 

Impede Financial Systems 

Development and 

Deployment 

Effective human capital management is critical to the success of systems 

implementations. As we previously reported in our Executive Guide: 

Creating Value Through World-class Financial Management,

38 having

staff with the appropriate skills is key to achieving financial management 

improvements, and managing an organization’s employees is essential to 

achieving results. By not identifying staff with the requisite skills to 

implement such systems and by not identifying gaps in needed skills and 

filling them, agencies reduce their chances of successfully implementing 

and operating new financial management systems. For example, in our 

prior report on building the IT workforce,39 we found that in the 1990s the 

initial rounds of downsizing were set in motion without considering the 

longer-term effects on agencies’ IT performance capacity. Additionally, a 

number of individual agencies drastically reduced or froze their hiring 

efforts for extended periods. Consequently, following a decade of 

downsizing and curtailed investments in human capital, federal agencies 

face skills, knowledge, and experience imbalances, especially in their IT 

workforces. Without corrective action, this situation will worsen, 

especially in light of the numbers of federal civilian workers becoming 

eligible to retire in the coming years. In this regard, we are emphasizing 

the need for additional focus on key problem areas we identified from 

prior reports including strategic workforce planning, human resources, 

and change management. Examples for some of the human capital 

management problems we identified in prior reports that hamper the 

implementation of new financial management systems are summarized in 

table 3. 

 38GAO, Executive Guide: Creating Value Through World-class Financial Management, 

GAO/AIMD-00-134 (Washington, D.C.: April 2000). 

39GAO, Human Capital: Building the Information Technology Workforce to Achieve 

Results, GAO-01-1007T (Washington, D.C.: July 31, 2001). 

Page 21 GAO-06-184 Financial Systems Modernization
Table 3: Problems Related to Strategic Human Capital Management in Implementing Financial Management Systems

Agency/related report(s) Key problem area(s) Observations

U.S. Customs and Border Protection 

(GAO-05-267) 

Strategic workforce planning

Human resources 

Change management 

A human capital strategy that provided both near- and 

long-term solutions to the program office’s human capital 

capacity limitations was needed. Key change 

management actions were not being implemented. The 

schedule was extended by 3 years and estimated costs 

increased by about $1 billion.

Department of Health and Human 

Services 

(GAO-04-1008) 

Strategic workforce planning

Human resources 

Strategic workforce planning was incomplete and ongoing 

staff shortages had played a role in key deliverables being 

significantly behind schedule.

Department of the Interior 

(Bureau of Indian Affairs) 

(GAO/AIMD-00-259) 

Change management Without taking time to reexamine and revise its business 

processes, Interior was not able to maximize the potential 

benefits of the new system and instead may perpetuate 

outmoded ways of doing business. 

Internal Revenue Service

(GAO-05-46) 

(GAO-05-774) 

Strategic workforce planning

Human resources 

IRS had not defined or implemented a human capital plan 

for obtaining, developing, and retaining requisite human

capital resources and experienced significant cost 

increases and schedule delays. 

National Aeronautics and Space 

Administration

(GAO-04-118) 

Human resources Personnel shortages at Marshall Space Flight Center for 

several months affected the core financial project and 

resulted in additional costs of nearly $400,000 for extra 

hours worked.

Office of Personnel Management 

(GAO-05-237) 

Change management OPM had not developed a detailed transition plan to help 

prepare users for changes to their job responsibilities. The 

award of the contract for the new system was delayed 

because OMB asked to review a revised business case

for the new system. 

Department of Veterans Affairs 

(VA IG, 04-01371-177) 

Human resources Conversion to the new system was disrupted because 

management did not ensure that inventory management 

staff were trained as required. The duties of the Project 

Director and Contracting Officer Technical Representative 

were too onerous for one individual to adequately 

manage. 

Source: GAO analysis based on prior GAO and IG reports. 

The following provides more specific details on two of the examples of the 

types of human capital management problems we found. 

• In May 2002, we first reported40 that the Customs Modernization Office 

did not have the people in place to perform critical system acquisition 

 40GAO, Customs Service Modernization: Management Improvements Needed on HighRisk Automated Commercial Environment Project, GAO-02-545 (Washington, D.C.: May 

13, 2002). 

Page 22 GAO-06-184 Financial Systems Modernization
functions and did not have an effective strategy for meeting its human 

capital needs. Customs had decided to compress its time frame for 

delivering its new system from 5 to 4 years and was taking a scheduledriven approach to acquiring the system because of the system’s 

national importance. This exacerbated the level of project risk by 

introducing more overlap among incremental system releases and 

stretching critical resources. In our most recent report issued in March 

2005,

41 we found that although Customs had developed a staffing plan, 

it had not been approved and was already out of date because the 

modernization office subsequently implemented a reorganization that 

transferred government and contractor personnel to the modernization 

office. We also observed that changes in roles and responsibilities had 

the modernization office and the contractor sharing development 

duties of the new system. Finally, Customs developed a revised 

organizational change approach with new change management 

activities, but key actions associated with the revised approach were 

not planned for implementation because the funding request for fiscal 

year 2005 did not fully reflect the revised approach. In July 2004, 

Customs extended delivery of the last release from fiscal year 2007 to 

fiscal year 2010, adding a new release for screening and targeting, and 

increasing the life-cycle cost estimate by about $1 billion to 

$3.1 billion. The new schedule reflected less overlap between future 

releases. While Customs, which is now under the Department of 

Homeland Security, has taken important actions to help address 

release-by-release cost and schedule overruns that we previously 

identified, we concluded that it was unlikely that these actions would 

prevent the past pattern of overruns from recurring because the 

Department of Homeland Security had relaxed system quality 

standards, so that milestones were being passed despite material 

system defects, and because correcting these defects will ultimately 

require the program to expend resources, such as people and test 

environments, at the expense of later system releases (some of which 

are now under way). 

• We reported, in September 2004,42 that staff shortages and limited 

strategic workforce planning resulted in HHS not having the resources 

 41GAO, Information Technology: Customs Automated Commercial Environment Program

Progressing, but Need for Management Improvements Continues, GAO-05-267 

(Washington, D.C.: Mar. 14, 2005). 

42GAO, Financial Management Systems: Lack of Disciplined Processes Puts 

Implementation of HHS’s Financial System at Risk, GAO-04-1008 (Washington, D.C.: 

Sept. 23, 2004). 

Page 23 GAO-06-184 Financial Systems Modernization
needed to effectively design and operate its new financial management 

system. HHS had taken the first steps in strategic workforce planning. 

For example, the Centers for Disease Control and Prevention (CDC), 

where the first deployment was scheduled, was the only operating 

division that had prepared a competency report, but a skills gap 

analysis and training plan for CDC had not been completed. In addition, 

many government and contractor positions on the implementation 

project were not filled as planned. For example, an independent 

verification and validation contractor reported that some key personnel

filled multiple positions and their actual available time was inadequate 

to perform the allocated tasks. As a result, some personnel were 

overworked, which, according to the independent verification and 

validation contractor could lead to poor morale. The organization chart 

for the project showed that the project team was understaffed and that 

several integral positions were vacant or filled with part-time detailees. 

While HHS and the systems integrator had taken measures to acquire 

additional human resources for the implementation of the new 

financial management system, we concluded that scarce resources 

could significantly jeopardize the project’s success and lead to several 

key deliverables being significantly behind schedule. In September 

2004, HHS decided to delay its first scheduled deployment at CDC by 6 

months in order to address these and other issues identified with the 

project. 

Other IT Management 

Practices Were Not Fully 

Implemented 

We identified a number of key problems related to other IT management 

practices. Specifically, we found that in planning and developing new 

financial management systems, agencies had not adequately considered 

their existing IT management processes and framework. Through our 

research into IT management best practices and our evaluation of agency

IT management performance, we have identified a set of essential and 

complementary management disciplines.43 These include key areas where 

we found problems such as enterprise architecture, investment 

management, and information security, among others. Using the results of 

this research and evaluation, we have developed various management 

frameworks and guides and reported on numerous IT management 

weaknesses at individual agencies. Table 4 summarizes and provides 

examples for some of the key problems we found described in prior 

reports on financial management system implementations related to other 

IT management areas not previously discussed. 

 43GAO-04-722. 

Page 24 GAO-06-184 Financial Systems Modernization
Table 4: Problems Related to Other IT Management Practices in Implementing Financial Management Systems

Agency/related report(s) Key problem area(s) Observations

Department of Defense 

(GAO-04-731R) 

(GAO-05-140T) 

(GAO-05-381) 

(GAO-05-702) 

Enterprise architecture 

Investment management 

Recent legislation pertaining to defense business systems, 

enterprise architecture, accountability, and modernization, if 

properly implemented, should improve system investment 

activities. However, DOD’s transformation efforts have not 

adequately addressed key underlying causes of past reform 

failures. 

Department of Health and Human 

Services 

(GAO-04-1008) 

Enterprise architecture 

Investment management

Information security 

HHS planned and developed its new system using the 

agency’s existing IT management processes that had known 

weaknesses in enterprise architecture, investment 

management, and information security. 

Department of the Interior 

(Bureau of Indian Affairs) 

(GAO/AIMD-00-259) 

Enterprise architecture Not having a complete information systems architecture to 

guide its new system and other projects was a major 

challenge for Interior. 

National Aeronautics and Space 

Administration

(GAO-04-754T) 

(GAO-05-799R) 

Enterprise architecture Key architecture management processes were not 

established, the architecture was missing important content,

and NASA had already implemented system components 

not mapped to the architecture. 

Office of Personnel Management 

(GAO-05-237) 

Investment management

Information security 

OPM lacked policies and procedures for guiding the 

investment board’s oversight responsibilities and had not 

developed specific security plans. 

Small Business Administration 

(SBA/IG-3-32) 

Information security The system was not fully secure and potential breaches of 

security could occur and go undetected. Due to cost issues 

for implementing phase I, which exceeded the entire $6.4 

million budget for full implementation, remaining phases 

were put on hold. 

Source: GAO analysis based on prior GAO and IG reports. 

The following provides more specific details on two of the examples of 

other problems related to IT management that have had an impact on 

financial management system implementation projects. 

• For several years, we have reported that deficiencies in DOD’s 

enterprise architecture and IT investment management policies are 

contributing factors to DOD’s stovepiped, duplicative, and 

nonintegrated systems environment. In May 2004, we reported44 that we 

had not seen any significant change in the content of DOD’s 

architecture or in DOD’s approach to investing billions of dollars 

annually in existing and new systems. Few actions had been taken to 

 44GAO, DOD Business Systems Modernization: Limited Progress in Development of 

Business Enterprise Architecture and Oversight of Information Technology Investments, 

GAO-04-731R (Washington, D.C.: May 17, 2004). 

Page 25 GAO-06-184 Financial Systems Modernization
address prior recommendations, which were aimed at improving 

DOD’s plans for developing the next version of the architecture and 

implementing the institutional means for selecting and controlling both 

planned and ongoing business systems investments. In April 2005, we 

reported45 that DOD still did not have an effective departmentwide 

management structure for controlling business investments despite 

DOD requesting over $13 billion in fiscal year 2005 to operate, 

maintain, and modernize its existing duplicative business systems. In 

addition, because DOD lacked a well-defined business enterprise 

architecture and transition plan, billions of dollars continued to be at 

risk of being spent on systems that would be duplicative, not 

interoperable, cost more to maintain than necessary, and would not 

optimize mission performance and accountability. In July 2005, we 

reported46 that despite spending almost 4 years and about $318 million, 

DOD still did not have an effective architecture program, and as a 

result its modernization program remained a high risk. 

• We reported, in February 2005,47 that OPM had implemented selected

processes in the areas of systems acquisition, investment management, 

and information security; however, many processes were not 

sufficiently developed, were still under development, or were planned 

for future development. Although OPM had an executive steering 

committee chaired by the deputy associate director of the Center for 

Retirement and Insurance Services that acted as an IT investment 

management board for the new retirement system, program officials 

were not aware of formal policies or procedures guiding the board’s 

oversight responsibilities or activities. Agency officials stated that they 

would define such a governance structure for the retirement system 

project during the contract award process. In addition, the agency had 

not yet developed security plans for the licensed technology and data 

conversion portions of the new system. Agency officials said they did 

not have detailed security requirements for the licensed technology 

portion of the new system, although the request for proposals 

identified the need for high-level security requirements. They planned 

 45GAO, DOD Business Systems Modernization: Billions Being Invested without Adequate 

Oversight, GAO-05-381 (Washington, D.C.: Apr. 29, 2005).

46GAO, DOD Business Systems Modernization: Long-standing Weaknesses in Enterprise

Architecture Development Need to Be Addressed, GAO-05-702 (Washington, D.C.: July 22,

2005). 

47GAO, Office of Personnel Management: Retirement Systems Modernization Program

Faces Numerous Challenges, GAO-05-237 (Washington, D.C.: Feb. 28, 2005). 

Page 26 GAO-06-184 Financial Systems Modernization
to develop detailed security requirements after awarding the licensed

technology contract to a vendor. Without fully developed security plans 

and security requirements for the licensed technology and data 

conversion portions of the new system, OPM increased the risk that 

both it and its vendors would not meet information security needs for 

these portions of the program expected to be implemented in fiscal 

year 2008. 

As the federal organization with key responsibility for federal financial

management systems, OMB has undertaken a number of initiatives related 

to acquiring and implementing financial management system capabilities.

Some of these initiatives are in collaboration with the CIO and CFO 

Councils and are broad-based attempts to reform financial management 

operations across the federal government. While reforming federal 

financial management is an undertaking of tremendous complexity, it 

presents great opportunities for improvements in financial management 

system implementations and related business operations. 

Federal Initiatives 

Under Way to 

Improve System 

Implementations 

Notably, OMB has developed and continues to evolve governmentwide 

Federal Enterprise Architecture products and has required a mapping of 

agency architectures to this federal architecture as part of the budget

review process. Another key OMB initiative is referred to as the lines of 

business and promotes streamlining common systems to enhance the 

government’s performance and services, such as establishing centers of 

excellence to consolidate financial management activities for major 

agencies through cross-servicing arrangements. The advantages of this 

approach are many, including the implementation of standard business 

processes and focusing system acquisition, development, and maintenance 

activities at select agencies or entities with experience that have the 

necessary resources to reduce the risks associated with such efforts. 

Furthermore, certain activities and responsibilities performed by JFMIP 

prior to its termination have been reassigned to OMB’s OFFM, the 

Financial Systems Integration Office, and a CFO Council Committee 

providing guidance and oversight. However, as discussed in the next 

section, we identified four key concepts that are not yet fully developed 

and integrated in OMB’s initiatives and related processes. Table 5 

highlights some of the foremost initiatives under way at OMB and their 

potential strengths. 

Page 27 GAO-06-184 Financial Systems Modernization
Table 5: OMB Initiatives to Reform Federal Financial Management System 

Implementations

Initiative Potential strengths

Federal Enterprise Architecture to 

build a comprehensive businessdriven blueprint of the entire federal 

government. 

• Business driven 

• Proactive and collaborative across the federal 

government 

• Architecture improves the effectiveness and 

efficiency of government information resources 

Lines of Business to develop 

business-driven common solutions 

that span across the federal 

government, such as consolidating 

duplicative financial management 

systems using centers of excellence 

to provide services. 

• Enhance process improvements 

• Achieve cost savings 

• Standardize business processes and data 

models 

• Promote seamless data exchange between 

federal agencies 

• Strengthen internal controls 

• Reduce development risks 

JFMIP Realignment to realign 

responsibilities for overseeing, 

developing, testing, and publishing 

core financial systems 

requirements, including the 

development of standard business 

processes. 

• Eliminate duplicative roles 

• Streamline financial management improvement 

efforts consistent with statutory requirements

• Define standard business processes and 

system requirements 

• Improve interoperability and data consistency 

Source: GAO analysis.

Federal Enterprise 

Architecture 

In 2002, OMB established the Federal Enterprise Architecture Program 

Management Office to develop a Federal Enterprise Architecture 

according to a collection of five reference models. These models are 

intended to facilitate governmentwide improvement through cross-agency 

analysis and the identification of duplicative investments, gaps, and 

opportunities for collaboration, interoperability, and integration within 

and across government agencies. According to OMB, the result will be a 

more citizen-centered, customer-focused government that maximizes 

technology investments to better achieve mission outcomes. The Federal

Enterprise Architecture reference models are summarized in table 6. 

Page 28 GAO-06-184 Financial Systems Modernization
Table 6: Federal Enterprise Architecture Reference Models 

Name Description

Business Reference 

Model 

Describes the business operations of the federal government 

independent of the agencies that perform them, including 

defining the services provided to state and local governments. 

Service Component 

Reference Model 

Identifies and classifies IT service (i.e., application) 

components that support federal agencies and promotes the

reuse of components across agencies. 

Technical Reference 

Model 

Describes how technology is supporting the delivery of service 

components, including relevant standards for implementing the 

technology. 

Performance Reference 

Model 

Provides a common set of general performance outputs and 

measures for agencies to use to achieve business goals and

objectives. 

Data and Information 

Reference Model 

Describes, at an aggregate level, the types of data and 

information that support program and business line operations, 

and the relationships among these types. 

Source: GAO analysis.

In May 2005, the five reference models were combined into the

Consolidated Reference Model document to compose a framework for 

describing important elements of the Federal Enterprise Architecture in a 

common and consistent way. OMB views the Federal Enterprise 

Architecture not as a static model, but as a program, built into the annual

budget process to repeatedly and consistently improve all aspects of 

government service delivery. OMB officials acknowledged that they are

still mapping out the Federal Enterprise Architecture and making it more 

robust and recognized that some lines of business have fleshed out their 

areas in more detail than others. In prior testimony on the Federal 

Enterprise Architecture,48 we recognized that OMB and the CIO Council 

have made important progress, but that hard work lies ahead to ensure 

that the Federal Enterprise Architecture is appropriately described, 

matured, and used. The development of the Federal Enterprise 

Architecture has continued to evolve and OMB has been promoting the 

adoption of the Federal Enterprise Architecture. For example, for the 

fiscal year 2007 budget submission, agencies will be required49 to use 

 48GAO-04-798T. 

49OMB Circular No. A-11, Preparation, Submission, and Execution of the Budget, Section 

53 (Washington, D.C.: June 21, 2005). 

Page 29 GAO-06-184 Financial Systems Modernization
predetermined codes to link their major IT investments on Exhibit 5350 to 

the Federal Enterprise Architecture. For fiscal year 2005, agencies were 

required to use the Federal Enterprise Architecture Performance 

Reference Model to identify performance measurements for each new 

major IT investment. As we have previously testified,51 questions remain 

regarding the nature of the Federal Enterprise Architecture, the 

relationship of agency enterprise architectures to the Federal Enterprise 

Architecture, and the security aspects of the Federal Enterprise 

Architecture. Therefore, we will not be addressing these issues further 

from a governmentwide perspective in this report. 

Lines of Business Building upon the efforts of the Federal Enterprise Architecture program, 

OMB and designated agency task forces have launched the lines of 

business initiative. This initiative seeks to develop business-driven 

common solutions for six lines of business52 that span across the federal

government. OMB and the lines of business task forces plan to use 

enterprise architecture-based principles and best practices to identify 

common solutions for business processes or technology-based shared 

services to be made available to government agencies. Driven from a 

business perspective rather than a technology focus, the solutions are 

expected to address distinct business improvements to enhance the 

government’s performance and services for citizens. The end results of the 

lines of business efforts are expected to save taxpayer dollars, reduce 

administrative burden, and significantly improve service delivery. 

We have long supported and called for such initiatives to standardize and 

streamline common systems, which can reduce costs and, if done 

correctly, can also improve accountability. OMB officials from both OFFM

and the Electronic Government office told us that they worked 

collaboratively to develop the financial management line of business along 

with an interagency task force. The interagency task force recommended 

 50Exhibit 53 lists all of the IT projects and their associated costs within a federal 

organization and are to be prepared each year as part of the budget process in accordance 

with OMB Circular No. A-11. 

51GAO-04-798T. 

52In March 2004, OMB initiated a governmentwide analysis of five lines of business—

financial management, human resources management, grants management, federal health 

architecture, and case management—and in March 2005 started a task force to address a

sixth line of business on IT security. 

Page 30 GAO-06-184 Financial Systems Modernization
the establishment of governmentwide service providers in the areas of 

financial management and human resources management. The financial 

management line of business raises a number of issues that have farreaching implications for the government and private sector application 

service providers. This concept has commonly been used in the private

sector where application service providers provide services such as 

payroll, sales force automation, and human resource applications to many 

corporate clients. The interagency task force analysis estimated that 

savings of more than $5 billion can be expected over a 10-year time frame 

through consolidation of financial management and human resources 

systems and the standardization and optimization of associated business 

processes and functions. To help realize these benefits, OMB evaluated 

agencies’ business cases submitted as part of the fiscal year 2006 budget 

process. On the basis of the review, the following four agencies were 

designated as governmentwide financial management application service 

providers, which OMB refers to as centers of excellence. 

• Department of the Interior (National Business Center) 

• General Services Administration 

• Department of the Treasury (Bureau of the Public Debt’s 

Administrative Resource Center) 

• Department of Transportation (Enterprise Services Center) 

The National Business Center, the General Services Administration, and 

the Bureau of the Public Debt have significant experience providing 

financial management services to other federal entities. For a number of 

years, these entities have provided financial management services—

primarily to smaller federal agencies such as the Nuclear Regulatory 

Commission, the Office of Government Ethics, and the Panama Canal 

Commission. The Department of Transportation plans to utilize its newly 

implemented financial management system to provide services to other 

agencies. OMB officials told us that, at a minimum, centers of excellence

must be able to support, or must use, core financial system software that 

has passed the most recent qualification test of the Financial Systems 

Integration Office, which is the current entity that performs many of the 

roles and responsibilities of the former JFMIP Program Management 

Office as we discuss below. Centers of excellence may provide related

maintenance, interfaces with feeder systems, and transaction processing. 

Page 31 GAO-06-184 Financial Systems Modernization
Other services may also be offered, including hosting53 and other financial

applications such as payroll and travel. OMB also indicated that it plans to

explore using private sector application service providers to serve as 

centers of excellence. 

OMB expects to manage the migrations of agencies to centers of 

excellence using the agencies’ business cases submitted as part of the 

annual budget process. According to OMB, agencies that submit business 

cases with proposals to develop new financial systems or significantly 

update or enhance current financial systems are prime candidates for 

moving to a financial management center of excellence. The general 

principle OMB plans to follow is that agencies should migrate to a 

financial management center of excellence when it is cost effective to do

so and they have maximized the return on investment in the current 

system, which averages about 5 to 7 years. OMB officials told us that 

several major executive branch agencies are considering moving to a

financial management center of excellence. 

In August 2005, OPM was the first large agency to announce its plans to 

move to a designated center of excellence. At the time of our review, OPM 

was still in the planning phase; although it had selected the Bureau of the 

Public Debt as the provider, it did not yet have a project plan. OPM 

officials recognized that moving to a center of excellence at the beginning 

of a fiscal year and not converting mid-year was a best practice they 

planned to follow. In addition, at the time of our review, the 

Environmental Protection Agency was in the planning and acquisition 

phase of its Financial System Modernization Project. As part of its bestvalue determination, the Environmental Protection Agency was 

considering the designated centers of excellence as well as private sector 

providers for software, integration, and hosting and had issued a draft 

request for quotations. Also, OMB officials stated that they helped the 

National Gallery of Art in preparing its solicitation for a new system, and 

the agency recently selected a private sector firm as its application service 

provider. OMB expects that most agencies will move to a center of 

excellence or private sector firm within the next 7 to 8 years. In OMB 

Circular No. A-11, for fiscal year 2007 OMB has asked agencies to provide 

an overview of their current and future financial management systems 

 53Hosting refers to a service provider who manages and provides availability to a Web site 

or application, often bound by a service-level agreement. The hosting entity generally 

maintains servers with network support, power backup, fault tolerance, load balancing,

and storage backup. 

Page 32 GAO-06-184 Financial Systems Modernization
framework, including migration strategies for moving to a financial 

management center of excellence. 

JFMIP Realignment In an effort to eliminate duplicative roles and streamline financial 

management improvement efforts, the four principals of JFMIP agreed to

realign JFMIP’s responsibilities for financial management policy and

oversight as described in a December 2004 OMB memorandum.54 Some of 

the former responsibilities of JFMIP, such as issuing systems 

requirements, were to be placed under the authority of OFFM and a 

renamed CFO Council committee—the Financial Systems Integration 

Committee. As a result of the realignment, JFMIP ceased to exist as a 

separate organization, although the principals will continue to meet at 

their discretion consistent with the Budget and Accounting Procedures 

Act of 1950 (codified, in part, at 31 U.S.C. §3511(d)). 

Under the realignment announced in December 2004, the JFMIP Program 

Management Office was to report to the chair of the CFO Council’s 

Financial Systems Integration Committee. This reporting relationship 

subsequently changed. At the request of the OMB Controller, the CFO at 

the Department of Labor now chairs the Financial Systems Integration 

Committee and is the leading agency sponsor of the financial management 

line of business. Two subcommittees were also established under the 

announced realignment:

• Configuration Control Subcommittee—to focus on interface 

requirements, and 

• Transaction Processing Standardization Subcommittee—to support 

interagency development of functional requirements for the software 

certification process. 

OMB officials indicated that the roles and responsibilities of the two 

subcommittees under the Financial Systems Integration Committee will 

likely continue to evolve. However, the full committee will periodically 

evaluate the subcommittees and whether they are well aligned and still 

needed or if additional subcommittees are needed. 

 54OMB, Realignment of Responsibilities for Federal Financial Management Policy and

Oversight, Memorandum (Washington, D.C.: Dec. 2, 2004).

Page 33 GAO-06-184 Financial Systems Modernization
Other significant responsibilities of the former JFMIP Program 

Management Office, which was previously managed by the JFMIP 

executive director using funds provided by the CFO Council, were shifted 

to the Financial Systems Integration Office (FSIO), which was established 

with staff from the original JFMIP Program Management Office. The FSIO

will now report to the FSIO executive director, who will report to the OMB 

Controller. Before the realignment, the JFMIP Program Management 

Office was responsible for the testing and certification of commercial offthe-shelf (COTS) core financial systems for use by federal agencies and 

coordinating the development and publication of functional requirements 

for financial management systems, among other things. OMB officials 

expect that the FSIO will continue to focus on core financial systems and 

still be responsible for certification and testing of core systems, but they 

plan to evaluate the effectiveness of the certification and testing function. 

In addition, OMB has recognized the need for standardization and the 

inclusion of key stakeholders in developing systems requirements and 

processes, but considers it a long-term goal. The FSIO will develop 

systems requirements and the Financial Systems Integration Committee 

will be responsible for advising OFFM on the systems requirements. OFFM

will now be responsible for issuing new systems requirements.55

According to OMB officials, the FSIO is reassessing the realignment plan 

described in the December 2004 OMB memorandum and recently 

developed foundational materials including the mission statement, goals,

objectives, performance indicators, scope of activities, prioritization of 

work, budget, organizational chart, and communication plan. According to

OMB officials, resources at FSIO will be aligned under the priorities 

identified and the office will be structured according to the new priorities. 

The FSIO will identify its needs for additional staff and determine how 

many are needed and what skill sets are appropriate. The FSIO will 

continue defining its priorities and evaluating the effectiveness of 

processes and its plans will continue to evolve.56 While OMB has taken 

steps to accomplish the Federal Enterprise Architecture, lines of business, 

 55Subsequent to our review, OMB issued Update on the Financial Management Line of 

Business and the Financial Systems Integration Office, Memorandum (Washington, D.C.: 

Dec. 16, 2005) which updated the status of the JFMIP realignment to FSIO. For example, 

responsibilities for issuing certain system requirements that had been reassigned to OMB

were transitioned to the Chief Acquisition Council, the Budget Officers Advisory Council, 

and the Federal Real Property Council. 

56See OMB, Update on the Financial Management Line of Business and the Financial

Systems Integration Office, Memorandum (Washington, D.C.: Dec. 16, 2005).

Page 34 GAO-06-184 Financial Systems Modernization
and JFMIP realignment initiatives, as discussed in the next section, it is 

generally at the early stages of implementation and a firm foundation has 

not yet been established to address the long-standing problems that have 

impeded success. 

The key for federal agencies to avoid the long-standing problems that have

plagued financial management system improvement efforts is to address 

the foremost causes of those problems and adopt solutions that reduce the 

risks associated with these efforts to acceptable levels. Although OMB has 

articulated an approach for reforming financial management systems 

governmentwide under its financial management line of business and 

JFMIP realignment initiatives, implementing these initiatives will be 

complex and challenging. OMB has correctly recognized that enhancing 

the government’s ability to implement financial management systems that 

are capable of providing accurate, reliable, and timely information on the 

results of operations needs to be addressed as a governmentwide solution,

rather than as individual agency stove-piped efforts designed to meet a 

given entity’s needs. However, OMB has not yet fully defined and 

implemented the processes needed to successfully complete these 

initiatives. Specifically, based on industry best practices, we identified 

four key concepts that are not yet fully developed and integrated in OMB’s 

initiatives and related processes. While OMB has addressed certain 

elements of these best practices in its initiatives, many specific steps are 

not yet completed. Careful consideration of these four concepts, each one 

building upon the next, will be integral to the success of OMB’s initiatives 

and will help break the cycle of failure in implementing financial 

management systems. The four concepts are (1) developing a concept of 

operations, (2) defining standard business processes, (3) developing a 

strategy for ensuring that agencies are migrated to a limited number of 

application service providers in accordance with OMB’s stated approach,

and (4) defining and effectively implementing disciplined processes 

necessary to properly manage the specific projects. The following sections 

highlight the key issues to be considered for each of the four areas. 

Broad-Based Actions 

Needed to Implement 

Financial 

Management Systems 

Governmentwide 

Page 35 GAO-06-184 Financial Systems Modernization
Key Issues 

• What is considered a financial management system? 

• Who will be responsible for developing a governmentwide concept of operations and 

what process will be used to ensure that the resulting document reflects the 

governmentwide solution rather than individual agency stove-piped efforts?

• How will the concept of operations be linked to the Federal Enterprise Architecture? 

• How can the federal government obtain reliable information on the costs of its financial 

management systems investments? 

Concept of Operations 

Provides Foundation 

A concept of operations defines how an organization’s day-to-day 

operations are (or will be) carried out to meet mission needs. The concept 

of operations includes high-level descriptions of information systems, their 

interrelationships, and information flows. It also describes the operations

that must be performed, who must perform them, and where and how the 

operations will be carried out. Further, it provides the foundation on 

which requirements definitions and the rest of the systems planning 

process are built. Normally, a concept of operations document is one of 

the first documents to be produced during a disciplined development 

effort and flows from both the vision statement and the enterprise 

architecture. According to the IEEE standards,57 a concept of operations is 

a user-oriented document that describes the characteristics of a proposed

system from the users’ viewpoint. The key elements that should be 

included in a concept of operations are major system components, 

interfaces to external systems, and performance characteristics such as 

speed and volume. 

In the case of federal financial management systems, another key element 

for the concept of operations would be a clear definition and scope of the 

financial management activities to be included. One problem with the 

current OMB approach for reporting is that systems that have historically

been considered part of financial management, such as payroll and 

inventory management, are not captured under the financial management 

line of business when a particular agency reports IT investments to OMB 

as part of the annual budget submission for inclusion in the Budget of the 

United States Government. This is because the Federal Enterprise 

Architecture coding structure for agencies to use when transmitting IT 

investment information to OMB calls for only IT investments that support 

certain financial system functions to be identified as a financial 

 57IEEE Std. 1362-1998. 

Page 36 GAO-06-184 Financial Systems Modernization
management system. An effective concept of operations would help 

identify these omissions.

Financial management systems are defined by OMB in Circulars No. A-11 

and A-127 in similar terms to that found in statutes such as FFMIA. This 

definition is also similar to that used by DOD to define a defense business 

system as provided by the fiscal year 2005 Defense Authorization Act.58

These various sources generally consider financial management systems 

to be financial systems and the financial portion of mixed systems that 

support the interrelationships and interdependencies between budget, 

cost, and management functions, and the information associated with 

business activities. A mixed system is an information system that supports 

both financial and nonfinancial functions of the federal government. At 

DOD, for example, an estimated 80 percent of the information needed to 

prepare annual financial statements comes from mixed systems such as 

logistics, personnel, and procurement systems that are outside of the 

responsibility of the DOD CFO. In contrast, the Federal Enterprise 

Architecture’s Business Reference Model defines a financial management 

system as one that uses financial information to measure, operate, and

predict the effectiveness and efficiency of an entity’s activities in relation 

to its objectives. These differences illustrate that a consistent definition of

financial management systems is not being used across the federal 

government.

One of the key challenges faced by OMB when evaluating financial 

management system implementation efforts is capturing all financial 

management system investments and their related costs. The fiscal year 

2006 budget requests for IT spending totaled about $65.2 billion. Our 

analysis showed that, of this amount, only $3.9 billion, less than 6 percent, 

is reflected under the financial management mission as defined by OMB 

using the definition of a financial management system in its Federal 

Enterprise Architecture. A more comprehensive analysis of financial 

management system investments using the definition in OMB Circular No. 

A-127 that includes mixed systems such as payroll and inventory and 

 58Pub. L. No. 108-375, § 332, 118 Stat. 1811, 1854 (Oct. 28, 2004) (codified at 10 U.S.C. § 

2222(j)(2)). The act defines a defense business system as an information system, other than

a national security system, operated by, for, or on behalf of the department that is used to

support business activities, such as acquisition, financial management, logistics, strategic 

planning and budgeting, installations and environment, and human resources management. 

The act states that such systems are to include financial systems, mixed systems, financial 

data feeder systems, and IT and information assurance infrastructure. 

Page 37 GAO-06-184 Financial Systems Modernization
including those considered by DOD as business systems brings the total to 

about $20 billion. Payroll and inventory management systems clearly 

support financial management activities, but these systems are not 

included in the financial management line of business within the Federal

Enterprise Architecture framework. The payroll and inventory systems are 

reflected under the human resource management and supply chain 

management lines of business, respectively.

Because of these differing definitions, the total number of systems and the 

respective costs associated with financial management system 

implementation efforts are difficult to capture. OMB officials stated that 

they are currently revising OMB Circular No. A-127 and will consider 

clarifying the definition to ensure that it is consistent with FFMIA. In 

addition, an effective concept of operations would help bridge this gap and 

facilitate the monitoring of the activity related to financial management 

systems. Addressing this issue would be a key factor in developing a 

foundation for the lines of business initiative to consolidate federal 

financial management systems under a limited number of application 

service providers. 

An effective concept of operations would describe, at a high level (1) how

all of the various elements of federal financial systems and mixed systems 

relate to each other, and (2) how information flows from and through 

these systems. Further, a concept of operations would provide a useful 

tool to explain how financial management systems at the agency and 

governmentwide levels can operate cohesively. It would be geared to a

governmentwide solution rather than individual agency stove-piped 

efforts. Further, it would provide a road map that can be used to 

(1) measure progress and (2) focus future efforts. OMB officials told us 

that they had developed a concept of operations, but did not know when it 

would be released or if it meets the criteria in the IEEE standards. 

Because the federal government has lacked such a document, a clear 

understanding of the interrelationships among federal financial systems 

and how the application service provider concept fits into this framework 

has not yet been achieved. 

While the Federal Enterprise Architecture, when fully populated, could

provide some of this perspective, a concept of operations document 

presents these items from a user’s viewpoint in nontechnical terms. Such a 

document would be invaluable in getting various stakeholders, including 

those at the agency and governmentwide levels, the software vendors, and 

the three branches of the federal government, to understand how the 

financial systems are expected to operate cohesively and how they fit into

Page 38 GAO-06-184 Financial Systems Modernization
“the big picture.” A concept of operations from this perspective would 

clarify which financial management systems should be operated at an 

agency level and which ones would be handled at a governmentwide level 

and how those two would integrate. In addition, it could identify the 

nature and extent of skills needed to effectively operate these systems. 

This would play a part in resolving some of the human capital 

management problems discussed previously. 

Another key element of a concept of operations is a transition strategy that 

is useful for developing an understanding of how and when changes will 

occur. Not only is this needed from an investment management point of 

view, it is a key element in the human capital problems discussed 

previously that revolved around change management strategies. 

Describing how to implement OMB’s approach for outsourcing financial 

management systems and the process that will be used to deactivate 

legacy systems that will be replaced or interfaced with a new financial 

management system are key aspects that need to be addressed in a 

transition strategy. This, in turn, allows the agencies to begin taking the 

necessary actions to integrate this approach into their investment 

management and change management processes. 

Key Issues 

• How can governmentwide standard business processes be developed to meet the 

needs of federal agencies? 

• How can agencies be encouraged to adopt new processes, rather than selecting other 

methods that result in simply automating old ways of doing business? 

• How will the standard business processes be implemented by the application service

providers to provide consistency across government agencies and among the 

application service providers?

• What process will be used to determine and validate the processes needed for 

agencies that have unique needs? 

Standard Business 

Processes Promote 

Consistency 

Business process models provide a way of expressing the procedures, 

activities, and behaviors needed to accomplish an organization’s mission 

and are helpful tools to document and understand complex systems. 

Business processes are the various steps that must be followed to perform 

a certain activity. For example, the procurement process would start when 

the agency defines its needs, issues a solicitation for goods or services and 

would continue through contract award, receipt of goods and services, 

and would end when the vendor properly receives payment. The 

identification of preferred business processes would be critical for 

standardization of applications and training and portability of staff, as well 

as for the software vendor community to use for software design and 

Page 39 GAO-06-184 Financial Systems Modernization
implementation purposes. Without standard processes, the federal 

government will continue to spend funds to develop individual agency 

stove-piped efforts that may or may not meet a given entity’s needs. 

To maximize the success of a new system acquisition, organizations need

to consider the redesign of current business processes. As we noted in our 

Executive Guide: Creating Value Through World-class Financial 

Management,

59 leading finance organizations have found that productivity 

gains typically result from more efficient processes, not from simply 

automating old processes. Moreover, the Clinger-Cohen Act of 1996

requires agencies to analyze the missions of the agency and, based on the 

analysis, revise mission-related and administrative processes, as 

appropriate, before making significant investments in information 

technology used to support those missions.60 Another benefit of what is 

often called business process modeling is that it generates better system 

requirements, since the business process models drive the creation of 

information systems that fit in the organization and will be used by end 

users. Other benefits include (1) providing a foundation for agency efforts 

to describe the business processes needed for unique missions, or to 

develop subprocesses to support those at the governmentwide level and 

(2) describing the business processes of the federal government to the 

vendor community for standardization. While in many cases, government 

business processes will be identical or very similar to processes used by 

the private sector, these standards should also describe processes unique 

to federal accounting. 

However, according to OMB officials, the lines of business initiative is 

moving forward even though this important key issue has not yet been 

addressed. OMB officials believed that for standardized processes, it is 

important to get buy-in as the processes are developed, and not force the 

process from the top. OMB officials we talked with recognized that 

standardization of business processes is important, but they did not want 

to wait to deploy the financial management line of business initiative until

standard business processes had been developed. OMB planned to task 

the newly created CFO Council Transaction Processing Standardization 

Subcommittee with the responsibility for developing standard federal 

 59GAO/AIMD-00-134. 

60See 40 U.S.C. § 11303(b)(2)(C).

Page 40 GAO-06-184 Financial Systems Modernization
business processes.61 Because this key issue has not been addressed, and 

the other key issues flow from it, little has been done to address those 

important considerations. From our perspective, adopting standardized 

processes is a fundamental step needed for all financial system 

implementations, but especially for making the financial management line 

of business initiative successful. Otherwise, we believe that there is a 

much greater risk of the continued proliferation of nonstandard business 

processes that would not result in a marked improvement from the current 

environment. 

Key Issues 

• What guidance will be provided to assist agencies in adopting a change management 

strategy that reduces the risks of moving to the application service provider

approach?

• What processes will be put in place to ensure that agency financial management 

system investment decisions focus on the benefits of standard processes and 

application service providers?

• What process will be used to facilitate the decision-making process used by agencies 

to select a given provider? 

• How will agencies incorporate strategic workforce planning in the implementation of 

the application service provider approach? 

Strategy for Implementing 

the Financial Management 

Line of Business Initiative 

Will Be Key 

Although OMB has a goal of migrating agencies to a limited number of 

application service providers within the next 7 to 8 years to deliver the 

standard business processes, rather than funding individual agency efforts, 

it has not yet articulated a clear and measurable strategy for achieving this 

goal. This is important because there has been a historical tendency for 

agencies and units within agencies to view their needs as urgent and resist 

standardization. Decisive action will be needed to ensure that agencies 

adopt the application service provider concept and that agencies do not 

continue to attempt to develop and implement their own financial 

management systems. OMB has been proactive since the beginning of the 

financial management line of business initiative in describing the goals of 

the initiative by making speeches, discussing the initiative with the media,

including it in the President’s budget request, and highlighting it on its Web 

site. However, there are limited tools and guidance available and OMB has 

not provided centers of excellence with standard document templates 

needed to minimize risk, provide assurance, and develop understandings 

 61Subsequent to our review, the responsibility for developing standard business processes 

was assigned to the FSIO according to the December 16, 2005, OMB memorandum to

CFOs. 

Page 41 GAO-06-184 Financial Systems Modernization
with customers on topics such as service level agreements and concept of

operations. A service level agreement is critical for both the application

service providers and the agencies to be held accountable for their 

respective parts of the agreement. Much work remains to develop a 

change management strategy that addresses key activities needed to

minimize the risk associated with the implementation of the financial 

management line of business initiative. 

Change management in the context of migrating federal agencies to an 

application service provider will need to include activities such as 

(1) developing specific criteria for requiring agencies to migrate to an

application service provider rather than attempting to develop and 

implement their own stove-piped business systems; (2) providing the 

necessary information for an agency to make a selection of an application 

service provider; (3) defining and instilling new values, norms, and 

behaviors within agencies that support new ways of doing work and 

overcoming resistance to change; (4) building consensus among 

customers and stakeholders on specific changes designed to better meet 

their needs; and (5) planning, testing, and implementing all aspects of the 

transition from one organizational structure and business process to 

another. 

According to leading IT organizations, organizational change management 

is the process of preparing users for the business process changes that will 

accompany implementation of a new system. An effective organizational 

change management process includes project plans and training that 

prepare users for impacts the new system might have on their roles and 

responsibilities and a process to manage those changes. We have reported 

on various problems with agencies’ change management including the 

failure to develop transition plans, reengineer business processes, and 

limit customization.62 In addition, one CFO Council member told us that 

from his perspective systems do not fail, but there is an implementation 

failure because of (1) ineffective coordination and communication 

between the CFO and CIO offices, (2) excessive modification of COTS 

systems, (3) business processes not being reengineered correctly, 

 62For example, see GAO, Indian Trust Funds: Improvements Made in Acquisition of New 

Asset and Accounting System But Significant Risks Remain, GAO/AIMD-00-259 

(Washington, D.C.: Sept. 15, 2000); GAO-05-237; and GAO, District of Columbia:

Weaknesses in Financial Management System Implementation, GAO-01-489 (Washington,

D.C.: Apr. 30, 2001). 

Page 42 GAO-06-184 Financial Systems Modernization
completely, or timely, and (4) a lack of authority and leadership for the 

CFO and project management offices to make the implementation work. 

With regard to establishing criteria for transitioning agencies to an 

application service provider, we note that providing governmentwide 

financial services is not a new concept to the federal government. One of 

the 24 Presidential Electronic Government initiatives is e-payroll, which 

was intended to consolidate 22 federal payroll systems into 4 federal 

payroll providers63 to simplify and standardize federal human 

resources/payroll policies and procedures to better integrate payroll, 

human resources, and finance functions. Numerous agencies had targeted 

their payroll operations for costly modernizations, and according to OMB, 

by consolidating duplicative payroll modernization efforts, an estimated 

$1.1 billion can be saved over the next decade in future IT investments 

given the economies of scale and cost avoidance. Federal agencies already 

have or will be migrating to one of the four selected payroll providers to 

process payroll and pay employees. 

OMB officials told us they learned from the e-payroll initiative that 

directing and forcing change as they had done with the e-payroll effort was 

not palatable to federal agencies. The agencies preferred having choices 

on timing the move and on having options for various providers. As a 

result, for the financial management line of business initiative, they do not 

plan to establish a migration path or time table. Further, processes have 

not been put in place to facilitate agency decisions on selecting a provider 

or focusing investment decisions on the benefits of standard processes 

and application service providers. It is not clear how this will impact the 

adoption of this initiative. Given the pressures to reduce budgets, 

discipline with respect to following a clear migration path will be 

essential. Without such a migration path, while some agencies may readily 

migrate to a center of excellence or application service provider to 

minimize the tremendous undertaking of implementing or significantly 

upgrading a financial system, other agencies will likely perpetuate the 

waste of taxpayer dollars previously described related to failed system 

implementation efforts. 

 63The payroll providers selected are Defense Finance and Accounting Service, the General 

Services Administration, the Department of Agriculture’s National Finance Center, and 

Interior’s National Business Center. 

Page 43 GAO-06-184 Financial Systems Modernization
The need for clear criteria on migrating agencies to the financial 

management line of business initiative is highlighted by the following 

example. 

• In fiscal year 2004, the Department of Justice embarked on 

implementing a new core financial system and is not planning to move 

to a center of excellence. OMB officials stated that they were not 

requiring Justice to move to a center of excellence because it had 

unique needs and was already far enough along in its attempt to 

modernize and consolidate the financial systems used throughout the 

agency. OMB officials also speculated that Justice might eventually 

become a center of excellence that focuses on law enforcement 

agencies and addresses the law enforcement community’s unique 

needs.64 According to a supporting document of the Analytical 

Perspectives, Budget of the United States Government, Fiscal Year 

2006, Justice spent about $6.9 million on modernizing its core financial

system in fiscal year 2004. Further, Justice planned to spend $23.1 

million for modernization during fiscal year 2005, and expects fiscal 

year 2006 modernization costs to more than triple to $72.5 million. In 

October 2004, the IG reported that little progress had been made in 

implementing the new system and continued to report financial 

management and systems as a top management challenge.65 Thus, it is 

not clear why Justice should continue with its financial systems 

development project when the cost is expected to significantly escalate 

and significant challenges remain. 

Further, the application service provider concept will still require that 

agencies address long-standing human capital problems by incorporating 

elements of strategic workforce planning such as (1) aligning an 

organization’s human capital program with its current and emerging 

mission and programmatic goals and (2) developing long-term strategies 

for acquiring, developing, and retaining an organization’s total workforce 

to meet the needs of the future. This includes a range of activities from 

identifying and defining roles and responsibilities, to identifying team 

members, to developing individual competencies that enhance 

performance. To maintain and enhance the capabilities of IT staff, 

 64Subsequent to our review, OMB officials told us that as part of their oversight for the

Justice project, Justice has agreed to consider an application service provider solution and 

does not plan on applying to be a designated center of excellence. 

65Department of Justice Office of the Inspector General, Top Management Challenges, 

Memorandum (Washington, D.C.: Oct. 13, 2004). 

Page 44 GAO-06-184 Financial Systems Modernization
organizations should develop and implement a human capital strategy 

that, among other things, includes assessing competencies and skills 

needed to effectively perform IT operations to support agency mission and 

goals, inventorying the competencies and skills of current IT staff to 

identify gaps in needed capabilities, and developing and implementing 

plans to fill the gap between requirements and current staffing. 

As we have testified,66 having sufficient numbers of people on board with 

the right mix of knowledge and skills can make the difference between 

success and failure. This is especially true in the IT area, where 

widespread shortfalls in human capital have contributed to demonstrable 

shortfalls in agency and program performance. According to Building the 

Work Force Capacity to Successfully Implement Financial Systems,

67 the 

roles needed on an implementation team are consistent across financial 

system implementation projects and include a project manager, systems 

integrator, functional experts, information technology manager, and IT 

analysts. Many of these roles require the dedication of full-time staff for 

one or more of the project’s phases.

Finally, sustained leadership will be key to a successful strategy for 

moving federal agencies towards consolidated financial management 

systems. In our Executive Guide: Creating Value Through World-class 

Financial Management,

68 we found that leading organizations made 

financial management improvement an entitywide priority by, among 

other things, providing clear, strong executive leadership. We also 

reported that making financial management a priority throughout the 

federal government involves changing the organizational culture of federal 

agencies. Although the views about how an organization can change its 

culture can vary considerably, leadership (executive support) is often 

viewed as the most important factor in successfully making cultural 

changes. Top management must be totally committed in both words and 

actions to changing the culture, and this commitment must be sustained 

and demonstrated to staff. In addition, a recent best practice guide on 

 66GAO-01-1007T. 

67JFMIP and the CFO Council issued this report in April 2002 that reviewed human capital 

challenges related to implementing financial management systems and identified strategies 

to meet the challenges. 

68GAO/AIMD-00-134. 

Page 45 GAO-06-184 Financial Systems Modernization
shared services69 stated that it is not enough for management to merely 

support the financial operations’ shared service implementation—top 

management must provide the leadership structure to ensure that the

transition is successful. Because the tenure of political appointees is 

relatively short, the current and future administrations must continue a 

strong emphasis on top-notch financial management. 

Key Issues 

• How can existing industry standards and best practices be incorporated into 

governmentwide guidance related to financial management system implementation 

efforts, including migrating to an application service provider? 

• What actions will be taken to reduce the risks and costs associated with data 

conversion and interface efforts? 

• What oversight process will be used to ensure that modernization efforts effectively 

implement the prescribed policies and procedures? 

Disciplined Processes Will 

Help Ensure Successful 

Implementations 

Once the concept of operations and standard business processes have 

been defined and a migration strategy is in place, individual agencies will 

have to work closely with the selected application service provider or 

systems integrator to help ensure that the implementation is successful. 

Although application service providers may provide a COTS solution, 

effective implementation and testing processes are still required to ensure 

that the system delivers the desired functionality on time and within 

budget. As previously discussed, a partnership between the CIO and CFO 

offices, as well as with those program management offices responsible for 

financial or mixed systems such as payroll and inventory, is critical for 

success. Agencies have frequently struggled to implement key best 

practices when implementing COTS financial management systems. The 

key to avoiding these long-standing implementation problems is to provide 

specific guidance to agencies for financial management system 

implementations, incorporating the best practices identified by the SEI, 

the IEEE, the Project Management Institute, and other experts that have 

been proven to reduce risk in implementing systems. Such guidance 

should include the various disciplined processes such as requirements 

management, testing, data conversion and system interfaces, risk and 

project management, and related activities, which have been problematic 

in the financial systems implementation projects we reviewed. 

 69Association of Government Accountants, Financial Management Shared Services: A 

Guide for Federal Users (Alexandria, Va.: July 2005). 

Page 46 GAO-06-184 Financial Systems Modernization
Disciplined processes have been shown to reduce the risks associated 

with software development and acquisition efforts to acceptable levels and

are fundamental to successful system implementations. The principles of 

disciplined IT systems development and acquisition of services apply to 

shared services implementation. A disciplined software implementation 

process can maximize the likelihood of achieving the intended results 

(performance) within established resources (costs) on schedule. For 

example, disciplined processes should be in place to address the areas of 

data conversion and interfaces, two of the many critical elements 

necessary to successfully implement a new system that have contributed 

to the failure of previous agency efforts. The former JFMIP provided 

guidance on data conversion, and the Configuration Control 

Subcommittee under the CFO Council’s Financial Systems Integration 

Committee was tasked with focusing on interface requirements.70

However, a standard set of practices will be needed to guide the migration 

from legacy systems to new systems and application service providers. 

Further details on disciplined processes needed can be found in appendix

III. 

In addition, oversight to help ensure that the disciplined processes are in 

place and operating as intended will be a critical factor in the success of 

the implementation of new and consolidated financial management 

systems. Currently, OMB guidance71 requires agencies to have qualified 

project managers and to use earned value management tools for major IT 

investments. However, OMB only performs limited reviews of agencies’ 

financial management systems implementations. OFFM officials told us 

that these reviews vary considerably in scope and that one of their goals is 

to provide more structure to the reviews. OMB’s review depends on the 

agency and the phase of the project, and generally does not focus on 

implementation of the disciplined processes used. Industry experts agree 

that the best indicator of whether risks have been reduced to an 

acceptable level is an assessment of the disciplined processes in place. For 

example, in the area of requirements management, disciplined processes 

would help ensure (1) the requirements document contains all the 

requirements identified by the customer, as well as those needed for the 

 70Subsequent to our review, the December 16, 2005, OMB memorandum to CFOs stated that 

the CFO Council’s Financial Systems Integration Committee was still evaluating its current 

subcommittee structure to assess whether changes are needed to best meet its objectives. 

71See OMB, Information Technology Project Manager Qualification Guidance, M-04-19 

(Washington, D.C.: July 21, 2004) and OMB Circular No. A-11, Section 300.

Page 47 GAO-06-184 Financial Systems Modernization
definition of the system, (2) the requirements fully describe the software 

functionality to be delivered, (3) the requirements are stated in clear terms 

that allow for quantitative evaluation, and (4) traceability among various 

documents is maintained. Proper oversight would entail verification of 

these requirements-related disciplined processes. 

In addition to problems with the structure and scope of OMB’s current 

system reviews, we noted that OFFM has a staff of only four employees 

dedicated to reviewing federal executive branch agency projects to 

implement financial management systems. These four staff also have other

time-consuming duties such as developing a coherent, coordinated 

architecture and issuing federal financial system requirements. As a result, 

the current level of detail in the existing system reviews is necessarily 

limited. Moreover, there is limited follow-up by OMB on suggested 

improvements they have made to agency officials, and there is not any 

impetus for agencies to implement suggested improvements. For example, 

OFFM officials told us that they advised an agency that there were 

numerous disadvantages to deploying a new financial management system 

mid-year. Nonetheless, the agency deployed the system at mid-year and

has faced problems by doing so. The FSIO also has a limited number of 

staff to perform its numerous financial management policy and oversight

activities and is currently reassessing its priorities and available resources. 

Given the range of OMB’s leadership roles and its relatively small size as 

part of the Executive Office of the President, it is not realistic to expect 

OMB to be able to carry out a comprehensive review function. Instead, 

agencies could be required to have their financial management system 

projects undergo independent verification and validation reviews to 

ensure that the projects adequately implemented the disciplined processes 

needed to manage the risks to acceptable levels. OMB could then review 

reports produced as a result of the independent verification and validation 

process to leverage its oversight efforts. Accordingly, OMB could then 

focus its oversight efforts on the projects with the greatest risks. 

Because the federal government is one of the largest and most complex 

organizations in the world, operating, maintaining, and modernizing its 

financial management systems represent a monumental challenge—

technically and cost-wise. The past paradigm must be changed from one in 

which each federal agency attempts to implement systems that, in many 

cases, are to perform redundant functions and have all too often resulted 

in failure, have been delayed, and cost too much. Thus, a more holistic 

governmentwide approach as OMB has been advocating is necessary to 

address the key causes of failure. OMB has recognized the seriousness of 

Conclusions 

Page 48 GAO-06-184 Financial Systems Modernization
the problems. Its primary initiative related to the use of a limited number 

of application service providers is a step in the right direction. This 

initiative is in the early stage and does not yet include basic elements that 

are integral to its success. Based on industry best practices, the following 

four concepts would help ensure a sound foundation for developing and 

implementing a governmentwide solution for long-standing financial 

management system implementation failures: (1) developing a concept of 

operations that ties in other systems, (2) defining standard business 

processes, (3) developing a strategy for ensuring that agencies are 

migrated to a limited number of application service providers, and 

(4) defining and effectively implementing applicable disciplined processes. 

As pressure mounts to do more with less, to increase accountability, and 

to reduce fraud, waste, abuse, and mismanagement, and efforts to reduce 

federal spending intensify, sustained and committed leadership will be a 

key factor in the successful implementation of these governmentwide 

initiatives. However, regardless of the approach taken, the adherence to

disciplined processes in systems development and acquisition will be at 

the core of successfully addressing the key causes of financial 

management system implementation failures. 

To help reduce the risks associated with financial management system 

implementation efforts and facilitate the implementation of the financial 

management line of business and JFMIP realignment initiatives across the 

government, we recommend that the Director of OMB take the following 

18 actions. This would entail placing a high priority on fully integrating 

into its approach the following concepts and underlying key issues, all of 

which are related to the fundamental disciplines in systems 

implementation: 

Recommendations for 

Executive Action 

• Developing a concept of operations. This would include 

• identifying the interrelationships among federal financial systems 

and how the application service provider concept fits into this 

framework, 

• prescribing which financial management systems should be 

operated at an agency level and which should be operated at a 

governmentwide level and how those would integrate, and 

• defining financial management systems in the Federal Enterprise 

Architecture to be more consistent with the similar definitions used 

in FFMIA and OMB Circulars No. A-11 and No. A-127. 

Page 49 GAO-06-184 Financial Systems Modernization
• Defining standard business processes. This would include 

• describing the standard business processes that are needed to meet 

federal agencies’ needs, 

• developing a process to identify those that are needed to meet

unique agency needs, 

• requiring application service providers to adopt standard business 

processes to provide consistency, and 

• encouraging agencies to embrace new processes. 

• Developing a strategy for ensuring that agencies are migrated to a 

limited number of application service providers in accordance with 

OMB’s stated approach. This would include 

• articulating a clear goal and criteria for ensuring agencies are

subject to the application service provider concept and cannot 

continue developing and implementing their own stove-piped 

systems, 

• establishing a migration path or time table for when agencies should 

migrate to an application service provider, 

• providing the necessary information for an agency to select an

application service provider, and 

• developing guidance to assist agencies in adopting a change 

management strategy for moving to application service providers. 

• Defining and effectively implementing disciplined processes necessary 

to properly manage the specific projects. This would include

• providing specific guidance to agencies on disciplined processes for 

financial system implementations, 

• providing a standard set of practices to guide the migrations from 

legacy systems to new systems and application service providers, 

and 

• developing processes to facilitate oversight and review that allow 

for a more structured review and follow-up of agencies’ financial 

system implementation projects. 

We received written comments on a draft of this report from the 

Controller of OMB, which are reprinted in appendix IV. The Controller 

agreed with our recommendations and described the approach and steps

that OMB is taking to improve financial management system 

modernization efforts. As OMB moves forward to address the 

recommendations in our report, it is important that it prioritize its efforts 

and focus on the concepts and underlying key issues we discussed, such 

as adequately defining and implementing disciplined processes. We are 

encouraged that OMB plans to issue additional guidance outlining the 

fundamental risk-reduction approaches that agencies can implement when 

Agency Comments 

and Our Evaluation 

Page 50 GAO-06-184 Financial Systems Modernization
acquiring and implementing financial systems. It will be critical that the 

guidance stresses the importance of this standard set of practices. We 

continue to believe that careful consideration of all the building blocks 

and key issues we identified will be integral to the success of OMB’s 

initiatives. OMB also provided additional oral comments which we 

incorporated as appropriate. 

We are sending copies of this report to the Chairman and Ranking 

Minority Member, Senate Committee on Homeland Security and 

Governmental Affairs, and other interested congressional committees. We

are also sending a copy to the Director of OMB. Copies will also be made 

available to others upon request. The report will also be available at no 

charge on GAO’s Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact 

McCoy Williams, Director, Financial Management and Assurance, who 

may be reached at (202) 512-9095 or by e-mail at williamsm1@gao.gov, or 

Keith A. Rhodes, Chief Technologist, Applied Research and Methods, who 

may be reached at (202) 512-6412 or by e-mail at rhodesk@gao.gov. 

Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of this report. GAO staff who made 

major contributions to this report are listed in appendix V. 

Financial Systems Modernization

McCoy Williams 

Director 

Financial Management and Assurance 

Keith A. Rhodes 

Chief Technologist 

Applied Research and Methods 

Center for Engineering and Technology 

Page 51 GAO-06-184
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To determine the key causes for financial management system 

implementation failures, we conducted database searches of GAO and 

inspector general (IG) Web sites to identify reports issued by any GAO 

teams or IGs that could be relevant. We summarized and analyzed prior 

GAO reports on commercial off-the-shelf financial management system 

implementations within the last 5 years. We performed a content analysis 

of the GAO and IG reports to determine if causes for the financial 

management system implementation problems were included. We 

discussed the relevant GAO report findings and current status with the key 

staff that worked on the reports. In addition, we identified other potential 

data sources, such as key industry groups and well-known national 

experts for information they had on this topic. We also interviewed key 

Office of Management and Budget (OMB) officials and had discussions 

with other interested parties such as Chief Financial Officers (CFO) 

Council representatives.

To identify the significant governmentwide initiatives that are currently 

under way that impact financial management systems implementation 

failures, we interviewed key OMB officials and reviewed relevant OMB 

policies, guidance, and memorandums related to the initiatives. We also 

interviewed CFO Council representatives to discuss the initiatives to 

reform federal financial management systems. In addition, we interviewed 

Office of Personnel Management officials to discuss their plans to migrate 

to a financial management center of excellence. We also reviewed reports 

from various authors and governmentwide forums where participants 

provided their perspectives on governmentwide initiatives. 

To provide our views on actions that can be taken to help improve the 

management and control of agency financial management system 

modernization efforts, we analyzed the GAO and IG reports we had 

identified as relevant to the topic to highlight the actions called for in 

those reports. Further, we reviewed material from key industry groups and 

national experts to identify any potential solutions posed by those groups, 

lessons learned, and relevant best practices. We took into consideration 

those governmentwide initiatives that were currently under way and the 

perspectives provided by authors and participants in governmentwide 

forums. In addition, during our consultations with various GAO 

stakeholders, and external groups such as OMB and the CFO Council, we 

obtained their perspectives on the actions needed to address the 

problems. 

Page 52 GAO-06-184 Financial Systems Modernization
Appendix I: Scope and Methodology 

We conducted our work in Washington, D.C., from January 2005 through

October 2005, in accordance with U.S. generally accepted government 

auditing standards. We did not evaluate the federal government’s overall 

IT strategy or whether a particular agency selected the most appropriate 

financial management system. Because we have previously provided 

agencies with specific recommendations in individual reports, we are not 

making additional recommendations to them in this report. We requested 

comments on a draft of this report from the Director of OMB or his 

designee. Written comments from OMB are reprinted in appendix IV and 

evaluated in the Agency Comments and Our Evaluation section. 

Page 53 GAO-06-184 Financial Systems Modernization
Appendix II: IG Reports Reviewed Appendix II: IG Reports Reviewed 

Department of the Treasury Office of Inspector General. The 

Modernization Program Is Establishing a Requirements Management 

Office to Address Development and Management Problems. Reference 

No. 2005-20-023. Washington, D.C.: January 19, 2005. 

Department of Transportation Office of Inspector General. Consolidated 

Financial Statements for Fiscal Years 2004 and 2003. Report FI-2005-

009. Washington, D.C.: November 15, 2004. 

Department of Housing and Urban Development Office of Inspector 

General. Fiscal Year 2004 Review of Information Systems Controls in 

Support of the Financial Statements Audit. Report 2005-DP-0001. 

Washington, D.C.: October 19, 2004. 

Department of Justice Office of Inspector General. The Drug Enforcement 

Administration’s Management of Enterprise Architecture and 

Information Technology Investments. Report 04-36. Washington, D.C.: 

September 2004. 

Department of Veterans Affairs Office of Inspector General. Issues at VA 

Medical Center Bay Pines, Florida and Procurement and Deployment of 

the Core Financial and Logistics System. Report 04-01371-177. 

Washington, D.C.: August 11, 2004. 

Department of Energy Office of Inspector General. Management of the 

Federal Energy Regulatory Commission’s Information Technology 

Program. Report DOE/IG-0652. Washington, D.C.: June 2004.

Department of Justice Office of Inspector General. The Federal Bureau of 

Investigation’s Implementation of Information Technology 

Recommendations. Report 03-36. Washington, D.C.: September 2003. 

Small Business Administration Office of Inspector General. Audit of SBA’s 

Acquisition, Development and Implementation of the Joint Accounting 

and Administrative Management System. Report 3-32. Washington, D.C.: 

June 30, 2003. 

Department of Energy Office of Inspector General. Audit Report on 

Business Management Information System. Report DOE/IG-0572. 

Washington, D.C.: November 2002. 

Department of the Interior Office of Inspector General. Developing the 

Department of the Interior’s Information Technology Capital Investment 

Page 54 GAO-06-184 Financial Systems Modernization
Appendix II: IG Reports Reviewed 

Process: A Framework for Action. Report 2002-I-0038. Washington, D.C.: 

August 2002.

Department of Defense Office of Inspector General. Development of the 

Defense Finance and Accounting Service Corporate Database and other

Financial Management Systems. Report D-2002-014. Washington, D.C.: 

November 7, 2001. 

Department of Transportation Office of Inspector General. Implementing 

a New Financial Management System. Report FI-2001-074. Washington,

D.C.: August 7, 2001.

Page 55 GAO-06-184 Financial Systems Modernization
Appendix III: Disciplined Processes 

Page 56 GAO-06-184

Appendix III: Disciplined Processes 

Disciplined processes have been shown to reduce the risks associated 

with software development and acquisition efforts to acceptable levels and

are fundamental to successful system implementations. A disciplined 

software implementation process can maximize the likelihood of 

achieving the intended results (performance) within established resources 

(costs) on schedule. Although a standard set of practices that will 

guarantee success does not exist, several organizations, such as the 

Software Engineering Institute (SEI) and the Institute of Electrical and 

Electronic Engineers (IEEE), and individual experts, have identified and 

developed the types of policies, procedures, and practices that have been

demonstrated to reduce development time and enhance effectiveness. The 

key to having a disciplined system development effort is to have 

disciplined processes in multiple areas, including requirements 

management, testing, data conversion and system interfaces, configuration 

management, risk management, project management, and quality 

assurance. 

Requirements are the specifications that system developers and program 

managers use to design, develop, and acquire a system. They need to be

carefully defined, consistent with one another, verifiable, and directly 

traceable to higher-level business or functional requirements. It is critical 

that they flow directly from the organization’s concept of operations (how 

the organization’s day-to-day operations are or will be carried out to meet 

mission needs).1

Disciplined Processes 

Are Key to Successful 

Financial 

Management System 

Implementation 

Efforts

Requirements Management 

According to the IEEE, a leader in defining the best practices for such 

efforts, good requirements have several characteristics, including the 

following:2

• The requirements fully describe the software functionality to be 

delivered. Functionality is a defined objective or characteristic action 

of a system or component. For example, for grants management, a key 

 1

According to IEEE Std. 1362-1998, a concept of operations document is normally one of 

the first documents produced during a disciplined development effort since it describes 

system characteristics for a proposed system from the user’s viewpoint. This is important

since a good concept of operations document can be used to communicate overall 

quantitative and qualitative system characteristics to the user, developer, and other 

organizational elements. This allows the reader to understand the user organizations, 

missions, and organizational objectives from an integrated systems point of view. 

2

IEEE Std. 830-1998. 

Financial Systems Modernization
Appendix III: Disciplined Processes 

functionality includes knowing (1) the funds obligated to a grantee for 

a specific purpose, (2) the cost incurred by the grantee, and (3) the 

funds provided in accordance with federal accounting standards. 

• The requirements are stated in clear terms that allow for quantitative 

evaluation. Specifically, all readers of a requirement should arrive at a 

single, consistent interpretation of it.

• Traceability among various requirement documents is maintained. 

Requirements for projects can be expressed at various levels

depending on user needs. They range from agencywide business 

requirements to increasingly detailed functional requirements that 

eventually permit the software project managers and other technicians 

to design and build the required functionality in the new system. 

Adequate traceability ensures that a requirement in one document is 

consistent with and linked to applicable requirements in another 

document. 

• The requirements document contains all of the requirements identified 

by the customer, as well as those needed for the definition of the 

system. 

Studies have shown that problems associated with requirements definition 

are key factors in software projects that do not meet their cost, schedule, 

and performance goals. Examples include the following: 

• A 1988 study found that getting a requirement right in the first place 

costs 50 to 200 times less than waiting until after the system is 

implemented to get it right.3

• A 1994 survey of more than 8,000 software projects found that the top 

three reasons that projects were delivered late, over budget, and with 

less functionality than desired all had to do with requirements 

management.4

 3

Barry W. Boehm and Philip N. Papaccio, “Understanding and Controlling Software Costs,” 

IEEE Transactions on Software Engineering, vol. 14, no. 10 (1988). 

4

The Standish Group, Charting the Seas of Information Technology (Dennis, Mass.: The 

Standish Group, 1994). 

Page 57 GAO-06-184 Financial Systems Modernization
Appendix III: Disciplined Processes 

• A 1994 study found that, on average, there is about a 25-percent 

increase in requirements over a project’s lifetime, which translates into 

at least a 25-percent increase in the schedule.5

• A 1997 study noted that between 40 and 60 percent of all defects found 

in a software project could be traced back to errors made during the 

requirements development stage.6

Testing Testing is the process of executing a program with the intent of finding 

errors.7

 Because requirements provide the foundation for system testing, 

they must be complete, clear, and well documented to design and 

implement an effective testing program. Absent this, an organization is 

taking a significant risk that substantial defects will not be detected until

after the system is implemented. As shown in figure 2, there is a direct 

relationship between requirements and testing. 

 5

Caper Jones, Assessment and Control of Software Risks (Englewood Cliffs, N.J.: Yourdon 

Press, 1994). 

6

Dean Leffingwell, “Calculating the Return on Investment from More Effective 

Requirements Management,” American Programmer (1997). 

7

Glenford J. Myers, The Art of Software Testing (N.Y.: John Wiley & Sons, Inc., 1979).

Page 58 GAO-06-184 Financial Systems Modernization
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Figure 2: Relationship between Requirements Development and Testing 

Although the actual testing occurs late in the development cycle, test 

planning can help disciplined activities reduce requirements-related 

defects. For example, developing conceptual test cases based on the 

requirements derived from the concept of operations and functional 

requirements stages can identify errors, omissions, and ambiguities long 

before any code is written or a system is configured. Disciplined 

Page 59 GAO-06-184 Financial Systems Modernization
Appendix III: Disciplined Processes 

organizations also recognize that planning the testing activities in 

coordination with the requirements development process has major 

benefits. 

Although well-defined requirements are critical for implementing a 

successful testing program, disciplined testing efforts for projects have

several characteristics,8 which include the following: 

• Testers who assume that the program has errors are likely to find a 

greater percentage of the defects present in the system. This is 

commonly called the testing mindset. 

• Test plans and scripts that clearly define what the expected results 

should be when the test case is properly executed and the program 

does not have a defect that would be detected by the test case. This 

helps to ensure that defects are not mistakenly accepted.

• Processes that ensure test results are thoroughly inspected. 

• Test cases that include exposing the system to invalid and unexpected 

conditions as well as the valid and expected conditions. This is 

commonly referred to as boundary condition testing. 

• Testing processes that determine if a program has unwanted side 

effects. For example, a process should update the proper records 

correctly but should not delete other records. 

• Systematic gathering, tracking, and analyzing statistics on the defects 

identified during testing. 

Although these processes may appear obvious, they are often overlooked 

in testing activities.9

 8

Testing covers a variety of activities. The discussion of the testing processes in this

appendix has been tailored to selected aspects of system implementation efforts and is not 

intended to provide a comprehensive discussion of all the processes that are required or 

the techniques that can be used to accomplish a disciplined testing process. 

9

Glendford J. Myers, The Art of Software Testing. 

Page 60 GAO-06-184 Financial Systems Modernization
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Data conversion is defined as the modification of existing data to enable 

them to operate with similar functional capability in a different 

environment.10 It is one of the many critical elements necessary to 

successfully implement a new system. Because of the difficulty and 

complexity associated with financial systems data conversion, highly

skilled staff are needed. There are three primary phases in a data 

conversion:

Data Conversion and 

System Interfaces 

1. Pre-conversion activities prior to and leading up to the conversion, 

such as determining the scope and approach or method, developing 

the conversion plan, performing data cleanup and validation, ensuring 

data integrity, and conducting necessary analysis and testing.

2. Cutover activities to convert the legacy data to the new system, such 

as testing system process and data edits, testing system interfaces 

(both incoming and outgoing), managing the critical path, supervising 

workload completion, and reconciliation. 

3. Post-installation activities such as verifying data integrity, 

conducting final disposition of the legacy system data, and monitoring 

the first reporting cycle.

There are also specific issues that apply uniquely to converting data as 

part of the replacement of a financial system, including 

• identifying specific open transactions and balances to be established, 

• analyzing and reconciling transactions for validation purposes, and 

• establishing transactions and balances in the new system through an 

automated or manual process. 

Further, consideration of various data conversion approaches and 

implications are important. Some considerations to be taken into account 

for the system conversion are the timing of the conversion (beginning-ofthe-year, mid-year, or incremental) and other options such as direct or 

flash conversions, parallel operations, and pilot conversions. In addition, 

agencies should consider different data conversion options for different 

categories of data when determining the scope and time lines such as 

 10Joint Financial Management Improvement Program, White Paper: Financial Systems 

Data Conversion–Considerations (Washington, D.C.: Dec. 20, 2002).

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Appendix III: Disciplined Processes 

• opting not to conduct a data conversion, 

• processing new transactions and activity only, 

• establishing transaction balances in the new system for reporting 

purposes, 

• converting open transactions from the legacy system, and 

• recording new activity on closed prior year transactions. 

Validation and adjustment of open transactions and data in the legacy 

system are essential prerequisites to the conversion process and have 

often been problematic. When data conversion is done right, the new 

system can flourish. However, converting data incorrectly has lengthy and 

long-term repercussions. 

System interfaces operate on an ongoing basis linking various systems and 

provide data that are critical to day-to-day operations, such as obligations, 

disbursements, purchase orders, requisitions, and other procurement 

activities. Testing the system interfaces in an end-to-end manner is 

necessary so agencies can have reasonable assurance that the system will 

be capable of providing the intended functionality. Systems that lack 

appropriate system interfaces often rely on manual reentry of data into 

multiple systems, convoluted systems, or both. According to the SEI, a 

widely recognized model for evaluating the interoperability of systems is 

the Levels of Information System Interoperability. This model focuses on 

the increasing levels of sophistication of system interoperability. Efforts at 

the highest level of this model—enterprise-based interoperability—are 

systems that can provide multiple users access to complex data 

simultaneously, data and applications are fully shared and distributed, and 

data have a common interpretation regardless of format. This is in contrast 

to the traditional interface strategies that are more aligned with the lowest 

level of the SEI model. Data exchanged at this level rely on electronic links 

that result in a simple electronic exchange of data. 

Configuration Management According to the SEI, configuration management is defined as a discipline 

applying technical and administrative direction and surveillance to 

(1) identify and document the functional and physical characteristics of a 

configuration item, (2) control changes to those characteristics, (3) record 

and report change processing and implementation status, and (4) verify 

compliance with specified requirements.11 The purpose of configuration 

 11IEEE Std. 610-1990. 

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Appendix III: Disciplined Processes 

management is to establish and maintain the integrity of work products. 

Configuration management involves the processes of 

• identifying the configuration of selected work products that compose 

the baselines at given points in time, 

• controlling changes to configuration items, 

• building or providing specifications to build work products from the 

configuration management system, 

• maintaining the integrity of baselines, and 

• providing accurate status and current configuration data to developers, 

integrators, and end users. 

The work products placed under configuration management include the 

products that are delivered to the customer, designated internal work 

products, acquired products, tools, and other items that are used in 

creating and describing these work products. 

For COTS systems, configuration management focuses on ensuring that 

changes to the requirements or components of a system are strictly 

controlled to ensure the integrity and consistency of system requirements 

or components. Two of the key activities for configuration management 

include ensuring that (1) project plans explicitly provide for evaluation, 

acquisition, and implementation of new, often frequent, product releases12

and (2) modification or upgrades to deployed versions of system 

components are centrally controlled, and unilateral user release changes 

are precluded. Configuration management recognizes that when using 

COTS products, it is the vendor, not the acquisition or implementing 

organization, that controls the release of new versions and that new 

versions are frequently released. 

Risk Management Risk and opportunity are inextricably related. Although developing 

software is a risky endeavor, risk management processes should be used 

to manage the project’s risks to acceptable levels by taking the actions 

necessary to mitigate the adverse effects of significant risks before they 

threaten the project’s success. If a project does not effectively manage its 

risks, then the risks will manage the project. 

 12Donald J. Reifer, Victor R. Basili, Barry W. Boehm, and Betsy Clark, “COTS-Based 

Systems—Twelve Lessons Learned about Maintenance.” (Presentation, 3rd International 

Conference on COTS-Based Software Systems, Redondo Beach, Calif., Feb. 4, 2004.) 

Page 63 GAO-06-184 Financial Systems Modernization
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Risk management is a set of activities for identifying, analyzing, planning, 

tracking, and controlling risks. Risk management starts with identifying 

the risks before they can become problems. If this step is not performed 

well, then the entire risk management process may become a useless 

exercise since one cannot manage something that one does not know 

anything about. As with the other disciplined processes, risk management 

is designed to eliminate the effects of undesirable events at the earliest 

possible stage to avoid the costly consequences of rework. 

After the risks are identified, they need to be analyzed so that they can be

better understood and decisions can be made about what actions, if any, 

will be taken to address them. Basically, this step includes activities such 

as evaluating the impact on the project if the risk does occur, determining 

the probability of the event occurring, and prioritizing the risk against the

other risks. Once the risks are analyzed, a risk management plan is 

developed that outlines the information known about the risks and the 

actions, if any, which will be taken to mitigate those risks. Risk monitoring 

is a continuous process because both the risks and actions planned to 

address identified risks need to be monitored to ensure that the risks are 

being properly controlled and that new risks are identified as early as 

possible. If the actions envisioned in the plan are not adequate, then 

additional controls are needed to correct the deficiencies identified. 

Project Management Effective project management is the process for planning and managing all 

project-related activities, such as defining how components are 

interrelated, defining tasks, estimating and obtaining resources, and 

scheduling activities. Project management allows the performance, cost, 

and schedule of the overall program to be continually measured, 

compared with planned objectives, and controlled. Project management 

activities include planning, monitoring, and controlling the project. 

Project planning is the process used to establish reasonable plans for 

carrying out and managing the software project. This includes 

(1) developing estimates of the resources needed for the work to be 

performed, (2) establishing the necessary commitments, and (3) defining 

the plan necessary to perform the work. Effective planning is needed to 

identify and resolve problems as soon as possible, when it is the cheapest

to fix them. According to one author, the average project expends about 

80 percent of the time on unplanned rework—fixing mistakes that were 

made earlier in the project. Recognizing that mistakes will be made in a 

project is an important part of planning. According to this author, 

successful system development activities are designed so that the project

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team makes a carefully planned series of small mistakes to avoid making 

large, unplanned mistakes. For example, spending the time to adequately 

analyze three design alternatives before selecting one results in time spent 

analyzing two alternatives that were not selected. However, discovering 

that a design is inadequate after development can result in code that must 

be rewritten, at a cost greater than analyzing the three alternatives in the

first place. This same author notes that a good rule of thumb is that each

hour a developer spends reviewing project requirements and architecture 

saves 3 to 10 hours later in the project.

13

Project monitoring and control help to understand the progress of the 

project and determine when corrective actions are needed based on the 

project’s performance. Best business practices indicate that a key facet of

project management and oversight is the ability to effectively monitor and 

evaluate a project’s actual performance, cost, and schedule against what 

was planned.14 In order to perform this critical task, the accumulation of 

quantitative data or metrics is required and can be used to evaluate a 

project’s performance. An effective project management and oversight 

process uses quantitative data or metrics to understand matters such as 

(1) whether the project plan needs to be adjusted and (2) oversight actions

that may be needed to ensure that the project meets its stated goals and 

complies with agency guidance. For example, an earned value 

management system is one metric that can be employed to better manage 

and oversee a system project.15 An earned value management system 

attempts to compare the value of work accomplished during a given 

 13Steve McConnell, Software Project Survival Guide (Redmond, Wash.: Microsoft Press,

1998). 

14GAO, Information Technology: DOD’s Acquisition Policies and Guidance Need to 

Incorporate Additional Best Practices and Controls, GAO-04-722 (Washington, D.C.: 

July 30, 2004). 

15According to Office of Management and Budget Circular No. A-11, earned value 

management is a project (investment) management tool that effectively integrates the 

investment scope of work with schedule and cost elements for optimum investment 

planning and control. Agencies must demonstrate use of an earned value management 

system that meets American National Standards Institute/ Electronic Industries Alliance 

Standard 748, for both government and contractor costs, for those parts of the total 

investment that require development efforts (e.g., prototypes and testing in the planning 

phase and development efforts in the acquisition phase) and show how close the 

investment is to meeting the approved cost, schedule, and performance goals. In addition,

agencies must provide an explanation for any cost or schedule variances that are more 

than plus or minus 10 percent.

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Appendix III: Disciplined Processes 

period with the work scheduled for that period. With ineffective project

oversight, management can only respond to problems as they arise. 

Agency management can also perform oversight functions, such as project 

reviews and participation in key meetings, to help ensure that the project

will meet the agency needs. Management can use independent verification 

and validation reviews to provide it with assessments of the project’s 

software deliverables and processes. Although independent of the 

developer, verification and validation is an integral part of the overall

development program and helps management mitigate risks. This core 

element involves having an independent third party—such as an internal

audit function or a contractor that is not involved with any of the system 

implementation efforts—verify and validate that the systems were 

implemented in accordance with the established business processes and 

standards. Doing so provides agencies with needed assurance about the 

quality of the system, which is discussed in more detail in the following 

section. 

Quality Assurance Quality assurance is defined as a set of procedures designed to ensure that 

quality standards and processes are adhered to and that the final product 

meets or exceeds the required technical and performance requirements. 

Quality assurance is a widely used approach in the software industry to 

improve upon product delivery and the meeting of customer requirements 

and expectations. The SEI indicates that quality assurance should begin in 

the early phases of a project to establish plans, processes, standards, and 

procedures that will add value to the project and satisfy the requirements 

of the project and the organizational policies. Quality assurance provides 

independent assessments, typically performed by an independent 

verification and validation or internal audit team, of whether management 

process requirements are being followed and whether product standards 

and requirements are being satisfied. Some of the widely used quality 

assurance activities include defect tracking, technical reviews, and system 

testing. 

• Defect tracking–keeping a record of each defect found, its source, 

when it was detected, when it was resolved, how it was resolved (fixed 

or not), and so on. 

• Technical reviews–reviewing user interface prototypes, requirements 

specifications, architecture, designs, and all other technical work 

products. 

Page 66 GAO-06-184 Financial Systems Modernization
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• System testing–executing software for the purpose of finding defects, 

typically performed by an independent test organization or quality 

assurance group. 

According to one author, quality assurance activities might seem to result 

in a lot of overhead, but in actuality, exactly the opposite is true.16 If 

defects can be prevented or removed early, a significant schedule benefit 

can be realized. For example, studies have shown that reworking defective 

requirements, design, and code typically consumes 40 to 50 percent of the

total costs of software development projects.17 An effective quality 

assurance approach is to detect as many defects as possible as early as 

possible to keep the costs of corrections down. However, enormous 

amounts of time can be saved by detecting defects earlier than during 

system testing. 

 16Steve McConnell, Software Project Survival Guide. 

17Steve McConnell, Rapid Development: Taming Wild Software Schedules (Redmond, 

Wash.: Microsoft Press, 1996). 

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Management and Budget 

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2

o Facilitate stronger internal controls that ensure integrity in accounting and other 

stewardship activities; 

o Reduce costs by providing a competitive alternative for agencies to acquire, develop, 

implement, and operate financial management systems through shared service solutions; 

o Standardize systems, business processes and data elements; and 

o Provide for seamless data exchange between and among Federal agencies by 

implementing a common language and structure for financial information and system 

interfaces.

3. What are the critical milestones that must be accomplished in order to achieve 

the vision and goals of the FMLOB? 

Federal agencies have begun implementing the FMLOB initiative by actively migrating to shared 

service providers and initiating solutions to integrate financial data among and between agency 

business systems. Nothing in this memorandum changes the expectation that agencies will 

continue to take all the necessary steps (in the earliest possible timeframes) to meet FMLOB 

objectives. The milestones described below, therefore, are intended to facilitate, not delay, 

agency efforts.

As depicted in Attachment 1, the critical milestones of the FMLOB can be broken down into 

three stages – (i) transparency and standardization; (ii) competitive environment and seamless 

data integration; and (iii) results.

Stage 1: Transparency and Standardization. In order to enable a competitive environment 

where agencies have more options and leverage in choosing a financial system, and in order to 

facilitate seamless integration of financial data among agency business systems, additional 

transparency and standardization is required.

Transparency: In determining the best options available when modernizing financial systems, 

the Federal financial community must have clarity on how to evaluate the performance and cost 

of shared service alternatives (i.e., Centers of Excellence (COE)) as well as clarity on what steps 

Federal agencies are expected to undertake in order to migrate to a COE. As described in more 

detail below, a COE is a shared service solution where a single entity provides financial 

management services for multiple organizations. In order to achieve additional transparency, 

two specific projects (with associated milestones) will be undertaken: 

x Establishment of Common Performance Measures – This project will result in standard 

quality and cost measures for agencies to benchmark and compare the performance of 

financial system alternatives. 

x Development of Migration Planning Guidance – This project will result in 

comprehensive guidance that helps Federal agencies describe, prepare for, and manage an 

agency’s migration to a COE. This guidance will also include a definition of the full 

range of services to be provided by all COEs and a description of the “rules of 

Page 71 GAO-06-184 Financial Systems Modernization
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3

engagement,” including templates for service level agreements outlining provider and 

client responsibilities.

Note: OMB is in the process of developing a “competition framework” that will assist agencies 

in conducting competitions and selecting a COE. This framework – expected to be issued in late 

December/early January – will be incorporated into the Migration Planning Guidance described 

above.

Standardization: In order to mitigate the cost and risk of migrations to a COE and to ensure that 

financial data can be shared across agency business systems, the Federal government must 

ensure greater standardization of business processes, interfaces, and data. To this end, two 

specific projects (with associated milestones) will be undertaken: 

x Development of Standard Business Processes – This project will result in governmentwide common business rules, data components, and policies for funds control, accounts 

payable, accounts receivable, and fixed assets.

x Creation of a Common Government-wide Accounting Code – This project will result in a 

uniform accounting code structure, layout, and definitions. 

Once established, all agencies will be expected to adopt these common processes on a schedule 

agreed upon between the agency and OMB. See Attachment 2 for additional details on the 

priority projects related to the transparency and standardization initiatives described above. 

Stage 2: Competitive Environment and Seamless Data Integration. In order to enable 

improved performance of financial systems, the FMLOB envisions more competitive alternatives 

for financial systems and an environment where financial data can be more easily compared and 

aggregated across agencies. 

Competitive Environment: To enable improved cost, quality, and performance of financial 

systems, Federal agencies must have competitive options available for financial systems. The 

COE framework is intended to help achieve these results. A COE is a shared service solution 

where a single entity provides financial management services for multiple organizations. When 

the FMLOB is successful, there will be a limited number of stable and high performing COEs 

that provide competitive alternatives for agencies investing in financial system modernizations. 

The economies of scale and skill of a COE will allow it to provide Federal agencies with a lower 

risk, lower cost, and increased service quality alternative for financial system modernization 

efforts. 

Notably, a competitive environment is sustainable if Federal agencies have the ability to migrate 

from one solution to a more competitive or better performing alternative that is offered. The 

transparency and standardization efforts described above will lay the foundation for facilitating 

better portability of agency systems from one solution to another. 

Seamless Data Integration: The standardization efforts, associated with Stage 1 of the FMLOB 

initiative, will enable financial data to be easily compared and aggregated across agencies. For 

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4

example, the development of a common government-wide accounting code will assist in the 

intra-governmental reconciliation process by requiring that all common types of financial data be 

accounted for in a similar format. A common structure will also enable easier transmission of 

financial reports to OMB and Treasury and assist these central agencies with aggregating 

similar-type data on a government-wide basis. Seamless and standardized data exchange will 

enable the government to streamline operations through more efficient information management 

and increased data accuracy. 

In addition, seamless data integration will reduce the costs and risks of establishing interfaces 

between agency business systems. By requiring standard core business processes, rules, data 

definitions, and a common government-wide accounting code, interfacing systems, such as 

travel, will not have to be specifically designed for each agency. This will save agencies money 

and enable them to more easily migrate between different system solutions. 

Stage 3: Results. When the FMLOB is fully realized, agencies’ data will be more timely and 

accurate for decision-making and there will be improved government-wide stewardship and 

accounting. More timely and accurate data will result from the standardization and seamless 

data integration efforts, including the implementation of centralized interfaces between core 

financial systems and other systems. These efforts will focus on promoting strong internal 

controls and ensuring the integrity of accounting data. The easy exchange of data between 

federal agencies will increase federal managers’ stewardship abilities. 

There will also be a reduction of government-wide information technology costs and risks. 

These benefits will be the result of shared-service solutions, also assisted by the standardization 

and seamless data integration efforts. Shared-service solutions will enable economies of scale by 

centrally locating, or consolidating, solution assets and reusing Federal and commercial subject 

matter expertise through common acquisitions, interface development, and application 

management. The reduction in the number of agencies implementing their own systems will 

reduce the risks, and associated costs, of systems implementations. 

4. What governance structure will be in place to ensure accountability for 

successful completion of priority FMLOB initiatives?

As depicted in Attachment 3, FSIO will have direct responsibility for completing priority 

projects under the FMLOB. OMB, in consultation with the Financial Systems Integration 

Committee (FSIC) of the CFO Council, will provide oversight and guidance to FSIO on 

priorities and expected performance in meeting these priorities. 

OMB will continue its role as Executive Sponsors of the FMLOB. The FSIC chair will be the 

lead agency sponsor for the FMLOB. A liaison from the CIO community and the Executive 

Director of FSIO will serve on the FSIC and support the FSIC chair in his/her responsibilities as 

they relate to the FMLOB. Going forward, FSIO will coordinate the collection and expenditure 

of FMLOB funds.

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5

The FSIC will assist OMB in evaluating and monitoring FSIO’s progress in completing FMLOB 

projects and provide feedback to OMB and FSIO. As appropriate, members of the FSIC will 

participate in working groups to assist FSIO with completing deliverables. The FSIC will 

evaluate its current subcommittee structure to assess whether changes are needed to best meet 

these objectives. 

The updated governance structure ensures that the FSIO, FMLOB, and the FSIC do not operate 

in separate stovepipes. In addition, responsibility for work products will now rest with FSIO, 

where full time dedicated staff will be held accountable for achieving FMLOB milestones. 

5. What is the status of the realignment of JFMIP to FSIO? 

In December of 2004, the JFMIP Principals voted to modify the roles and responsibilities of the 

JFMIP Program Office, now FSIO. As a result, OMB and the FSIC were given an increased 

management and oversight role in the activities of FSIO. OMB and the FSIC have worked 

closely with FSIO staff to update FSIO’s mission statement and define FSIO’s scope of activities 

and priorities for FY 2006.

In terms of mission and scope, FSIO has three major areas of responsibilities: (a) continuing its 

primary role of core financial system requirements development, testing, and certification; (b) 

providing support to the Federal financial community by taking on special priority projects as 

determined by the OMB Controller, CFO Council, and the FSIO Executive Director, and (c) 

conducting outreach through the annual financial management conference and other related 

activities. 

Most importantly, the projects that FSIO undertakes will directly reflect the priorities of the CFO 

Community and OMB. As noted above, the priority projects to be undertaken in the near term 

will relate to the transparency and standardization initiatives of the FMLOB. Other projects that 

were previously under FSIO’s purview – acquisition, budget formulation, and property system 

requirements – have been transitioned to the Chief Acquisition Council, the Budget Officers 

Advisory Council, and the Federal Real Property Council, respectively, for their consideration 

and completion. 

Also, effective January 2006, the FSIO office will be transferred from the General Service 

Administration’s (GSA) Office of the Chief Financial Officer to the Office of Government-wide 

Policy, Office of Technology Strategy (OTS). There are several significant benefits of this 

move:

• lower administrative cost through shared resources (rent, supplies, equipment, etc.) 

• permanent SES in place to provide leadership to FSIO staff 

• access to immediate resources and expertise on IT, administrative management, contract 

management, testing, etc. 

• fits well with current mission and stakeholder focused model of OTS 

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6

6. What specific actions are expected of Federal agencies? 

As described above, a central goal of the FMLOB is that financial system investments will be at 

lower risk and lower cost as agencies leverage the economies offered by shared service solutions 

(i.e., COEs). To this end, OMB has instituted a policy that agencies seeking to modernize their 

financial system must either be designated a public COE or must migrate to a COE (public, 

private, or a combination of both). Although exceptions to this policy will be made in limited 

situations when an agency demonstrates compelling evidence of a best value and lower risk 

alternative, it is OMB’s intent to avoid investments in “in-house” solutions wherever possible so 

that the shared service framework can fully achieve potential and anticipated returns.

To the extent we require any specific action on your part to carry out the priority initiatives and 

milestones outlined above, we will communicate such requests through subsequent memos from 

OMB or the FSIC. 

Thank you for your ongoing commitment to the FMLOB initiative. I look forward to working 

with each of you to achieve specific and measurable results in the immediate future. 

cc: Chief Information Officers Council 

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FMLOB Vision/Framework

Results Improved performance of 

financial system solutions

(agency and govt.-wide) -- timely 

& accurate data for decisions; 

lower risk and cost; 

improved stewardship and 

accounting

Competitive

Environment

Standardization 

A limited number of high 

performing and stable shared 

service providers that offer 

competitive alternative 

for Federal agencies

Performance Measures

Standard quality and 

cost measures for agencies

to benchmark and compare 

performance of financial 

system alternatives

Transparency 

Seamless Data 

Integration

Financial data easily compared and 

aggregated across agencies; 

reduced cost and risk of 

establishing interfaces between

agency business systems 

Migration Planning 

Guidance

Menu of services

offered by COEs; rules of 

engagement; comparing 

public vs. private solutions; 

human capital implications

Standard Business 

Processes, Rules, 

& Data Elements

Core financial functions 

such as payables, 

receivables, funds control

Common Accounting 

Code

Uniform standard

structure, layout, 

definitions

Attachment 1

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FMLOB - Workstreams

Transparency Standardization

Performance Measures Migration Planning Guidance Business Processes Common Accounting Code

Project Description: Develop 

guidance for shared service centers 

and agencies migrating to a shared 

service center. The guidance will 

address:

• menu of services offered by 

COEs;

• project plan templates;

• service level agreement 

templates; 

• rules of engagement (i.e., relevant 

contractual and competitive criteria 

involved in migration) 

• due diligence checklist (clarified 

and updated); 

• comparison of approaches on 

public vs. private solutions; 

• migration risk areas (interfaces, 

data conversion and clean up, 

testing, financial reporting, change 

to business processes); and

• human capital planning.

Responsible Office: OMB and 

CFO Council, Financial Systems 

Integration Committee

Timeline for Project 

Completion: 3/31/06 

Project Description: Develop a 

series of measures (i.e., cost, 

quality, timeliness) to assess the 

performance of those services. 

• Measures will address the 

major service areas offered by a 

financial service organization 

(e.g., Center of Excellence).

• For each measure, identify 

corresponding benchmarks for 

equivalent services (either 

internal or outsourced) offered by 

public and private organizations. 

• In order to compare 

performance across the Federal 

government, it must be possible 

to normalize the measures (e.g., 

cost per transaction, cycle-time).

Project Description: Develop 

a standard set of business 

practices for core financial 

management functions (funds, 

payments, receipts, fixed 

assets) to be adopted by all 

federal agencies. The 

document/model will include: 

• sequenced activities for core 

business processes;

• data objects participating in a 

business activity;

• relationships among the 

objects as they exist in the 

actual business activities;

• data elements and definitions 

stored about these objects; 

and

• business rules governing 

these objects. 

Project Description: Develop a 

common accounting code 

structure, including an applicable 

set of definitions, which all federal 

agencies’ new financial 

management systems must 

adhere. The common accounting 

code structure will: 

• accommodate both standard 

government-wide accountingrelated functions and critical 

agency-mission-specific 

accounting functions (data); and

• include standardization of such 

items as Treasury Account 

Symbol/Treasury Account Funds 

Symbol; Internal fund code; 

Budget fiscal year; Accounting 

quarter and month; Program; 

Organization; Project; Activity; 

Cost Center; Object Class; and 

Budget function (and sub function 

code).

Responsible Office: FSIO Responsible Office: FSIO Responsible Office: FSIO

Timeline for Project 

Completion: 3/31/06

Timeline for Project 

Completion: 9/30/06 

Timeline for Project 

Completion: 9/30/06

Attachment 2

FMLOB - Workstreams

Transparency Standardization

Performance Measures Migration Planning Guidance Business Processes Common Accounting Code

Project Description: Develop 

guidance for shared service centers 

and agencies migrating to a shared 

service center. The guidance will 

address:

• menu of services offered by 

COEs;

• project plan templates;

• service level agreement 

templates; 

• rules of engagement (i.e., relevant 

contractual and competitive criteria 

involved in migration) 

• due diligence checklist (clarified 

and updated); 

• comparison of approaches on 

public vs. private solutions; 

• migration risk areas (interfaces, 

data conversion and clean up, 

testing, financial reporting, change 

to business processes); and

• human capital planning.

Responsible Office: OMB and 

CFO Council, Financial Systems 

Integration Committee

Timeline for Project 

Completion: 3/31/06 

Project Description: Develop a 

series of measures (i.e., cost, 

quality, timeliness) to assess the 

performance of those services. 

• Measures will address the 

major service areas offered by a 

financial service organization 

(e.g., Center of Excellence).

• For each measure, identify 

corresponding benchmarks for 

equivalent services (either 

internal or outsourced) offered by 

public and private organizations. 

• In order to compare 

performance across the Federal 

government, it must be possible 

to normalize the measures (e.g., 

cost per transaction, cycle-time).

Project Description: Develop 

a standard set of business 

practices for core financial 

management functions (funds, 

payments, receipts, fixed 

assets) to be adopted by all 

federal agencies. The 

document/model will include: 

• sequenced activities for core 

business processes;

• data objects participating in a 

business activity;

• relationships among the 

objects as they exist in the 

actual business activities;

• data elements and definitions 

stored about these objects; 

and

• business rules governing 

these objects. 

Project Description: Develop a 

common accounting code 

structure, including an applicable 

set of definitions, which all federal 

agencies’ new financial 

management systems must 

adhere. The common accounting 

code structure will: 

• accommodate both standard 

government-wide accountingrelated functions and critical 

agency-mission-specific 

accounting functions (data); and

• include standardization of such 

items as Treasury Account 

Symbol/Treasury Account Funds 

Symbol; Internal fund code; 

Budget fiscal year; Accounting 

quarter and month; Program; 

Organization; Project; Activity; 

Cost Center; Object Class; and 

Budget function (and sub function 

code).

Responsible Office: FSIO Responsible Office: FSIO Responsible Office: FSIO

Timeline for Project 

Completion: 3/31/06

Timeline for Project 

Completion: 9/30/06 

Timeline for Project 

Completion: 9/30/06

Attachment 2

FMLOB - Workstreams

Transparency Standardization

Performance Measures Migration Planning Guidance Business Processes Common Accounting Code

Project Description: Develop 

guidance for shared service centers 

and agencies migrating to a shared 

service center. The guidance will 

address:

• menu of services offered by 

COEs;

• project plan templates;

• service level agreement 

templates; 

• rules of engagement (i.e., relevant 

contractual and competitive criteria 

involved in migration) 

• due diligence checklist (clarified 

and updated); 

• comparison of approaches on 

public vs. private solutions; 

• migration risk areas (interfaces, 

data conversion and clean up, 

testing, financial reporting, change 

to business processes); and

• human capital planning.

Responsible Office: OMB and 

CFO Council, Financial Systems 

Integration Committee

Timeline for Project 

Completion: 3/31/06 

Project Description: Develop a 

series of measures (i.e., cost, 

quality, timeliness) to assess the 

performance of those services. 

• Measures will address the 

major service areas offered by a 

financial service organization 

(e.g., Center of Excellence).

• For each measure, identify 

corresponding benchmarks for 

equivalent services (either 

internal or outsourced) offered by 

public and private organizations. 

• In order to compare 

performance across the Federal 

government, it must be possible 

to normalize the measures (e.g., 

cost per transaction, cycle-time).

Project Description: Develop 

a standard set of business 

practices for core financial 

management functions (funds, 

payments, receipts, fixed 

assets) to be adopted by all 

federal agencies. The 

document/model will include: 

• sequenced activities for core 

business processes;

• data objects participating in a 

business activity;

• relationships among the 

objects as they exist in the 

actual business activities;

• data elements and definitions 

stored about these objects; 

and

• business rules governing 

these objects. 

Project Description: Develop a 

common accounting code 

structure, including an applicable 

set of definitions, which all federal 

agencies’ new financial 

management systems must 

adhere. The common accounting 

code structure will: 

• accommodate both standard 

government-wide accountingrelated functions and critical 

agency-mission-specific 

accounting functions (data); and

• include standardization of such 

items as Treasury Account 

Symbol/Treasury Account Funds 

Symbol; Internal fund code; 

Budget fiscal year; Accounting 

quarter and month; Program; 

Organization; Project; Activity; 

Cost Center; Object Class; and 

Budget function (and sub function 

code).

Responsible Office: FSIO Responsible Office: FSIO Responsible Office: FSIO

Timeline for Project 

Completion: 3/31/06

Timeline for Project 

Completion: 9/30/06 

Timeline for Project 

Completion: 9/30/06

Attachment 2

FMLOB - Workstreams

Transparency Standardization

Performance Measures Migration Planning Guidance Business Processes Common Accounting Code

Project Description: Develop 

guidance for shared service centers 

and agencies migrating to a shared 

service center. The guidance will 

address:

• menu of services offered by 

COEs;

• project plan templates;

• service level agreement 

templates; 

• rules of engagement (i.e., relevant 

contractual and competitive criteria 

involved in migration) 

• due diligence checklist (clarified 

and updated); 

• comparison of approaches on 

public vs. private solutions; 

• migration risk areas (interfaces, 

data conversion and clean up, 

testing, financial reporting, change 

to business processes); and

• human capital planning.

Responsible Office: OMB and 

CFO Council, Financial Systems 

Integration Committee

Timeline for Project 

Completion: 3/31/06 

Project Description: Develop a 

series of measures (i.e., cost, 

quality, timeliness) to assess the 

performance of those services. 

• Measures will address the 

major service areas offered by a 

financial service organization 

(e.g., Center of Excellence).

• For each measure, identify 

corresponding benchmarks for 

equivalent services (either 

internal or outsourced) offered by 

public and private organizations. 

• In order to compare 

performance across the Federal 

government, it must be possible 

to normalize the measures (e.g., 

cost per transaction, cycle-time).

Project Description: Develop 

a standard set of business 

practices for core financial 

management functions (funds, 

payments, receipts, fixed 

assets) to be adopted by all 

federal agencies. The 

document/model will include: 

• sequenced activities for core 

business processes;

• data objects participating in a 

business activity;

• relationships among the 

objects as they exist in the 

actual business activities;

• data elements and definitions 

stored about these objects; 

and

• business rules governing 

these objects. 

Project Description: Develop a 

common accounting code 

structure, including an applicable 

set of definitions, which all federal 

agencies’ new financial 

management systems must 

adhere. The common accounting 

code structure will: 

• accommodate both standard 

government-wide accountingrelated functions and critical 

agency-mission-specific 

accounting functions (data); and

• include standardization of such 

items as Treasury Account 

Symbol/Treasury Account Funds 

Symbol; Internal fund code; 

Budget fiscal year; Accounting 

quarter and month; Program; 

Organization; Project; Activity; 

Cost Center; Object Class; and 

Budget function (and sub function 

code).

Responsible Office: FSIO Responsible Office: FSIO Responsible Office: FSIO

Timeline for Project 

Completion: 3/31/06

Timeline for Project 

Completion: 9/30/06 

Timeline for Project 

Completion: 9/30/06

Attachment 2

FMLOB - Workstreams

Transparency Standardization

Performance Measures Migration Planning Guidance Business Processes Common Accounting Code

Project Description: Develop 

guidance for shared service centers 

and agencies migrating to a shared 

service center. The guidance will 

address:

• menu of services offered by 

COEs;

• project plan templates;

• service level agreement 

templates; 

• rules of engagement (i.e., relevant 

contractual and competitive criteria 

involved in migration) 

• due diligence checklist (clarified 

and updated); 

• comparison of approaches on 

public vs. private solutions; 

• migration risk areas (interfaces, 

data conversion and clean up, 

testing, financial reporting, change 

to business processes); and

• human capital planning.

Responsible Office: OMB and 

CFO Council, Financial Systems 

Integration Committee

Timeline for Project 

Completion: 3/31/06 

Project Description: Develop a 

series of measures (i.e., cost, 

quality, timeliness) to assess the 

performance of those services. 

• Measures will address the 

major service areas offered by a 

financial service organization 

(e.g., Center of Excellence).

• For each measure, identify 

corresponding benchmarks for 

equivalent services (either 

internal or outsourced) offered by 

public and private organizations. 

• In order to compare 

performance across the Federal 

government, it must be possible 

to normalize the measures (e.g., 

cost per transaction, cycle-time).

Project Description: Develop 

a standard set of business 

practices for core financial 

management functions (funds, 

payments, receipts, fixed 

assets) to be adopted by all 

federal agencies. The 

document/model will include: 

• sequenced activities for core 

business processes;

• data objects participating in a 

business activity;

• relationships among the 

objects as they exist in the 

actual business activities;

• data elements and definitions 

stored about these objects; 

and

• business rules governing 

these objects. 

Project Description: Develop a 

common accounting code 

structure, including an applicable 

set of definitions, which all federal 

agencies’ new financial 

management systems must 

adhere. The common accounting 

code structure will: 

• accommodate both standard 

government-wide accountingrelated functions and critical 

agency-mission-specific 

accounting functions (data); and

• include standardization of such 

items as Treasury Account 

Symbol/Treasury Account Funds 

Symbol; Internal fund code; 

Budget fiscal year; Accounting 

quarter and month; Program; 

Organization; Project; Activity; 

Cost Center; Object Class; and 

Budget function (and sub function 

code).

Responsible Office: FSIO Responsible Office: FSIO Responsible Office: FSIO

Timeline for Project 

Completion: 3/31/06

Timeline for Project 

Completion: 9/30/06 

Timeline for Project 

Completion: 9/30/06

Attachment 2

FMLOB - Workstreams

Transparency Standardization

Performance Measures Migration Planning Guidance Business Processes Common Accounting Code

Project Description: Develop 

guidance for shared service centers 

and agencies migrating to a shared 

service center. The guidance will 

address:

• menu of services offered by 

COEs;

• project plan templates;

• service level agreement 

templates; 

• rules of engagement (i.e., relevant 

contractual and competitive criteria 

involved in migration) 

• due diligence checklist (clarified 

and updated); 

• comparison of approaches on 

public vs. private solutions; 

• migration risk areas (interfaces, 

data conversion and clean up, 

testing, financial reporting, change 

to business processes); and

• human capital planning.

Responsible Office: OMB and 

CFO Council, Financial Systems 

Integration Committee

Timeline for Project 

Completion: 3/31/06 

Project Description: Develop a 

series of measures (i.e., cost, 

quality, timeliness) to assess the 

performance of those services. 

• Measures will address the 

major service areas offered by a 

financial service organization 

(e.g., Center of Excellence).

• For each measure, identify 

corresponding benchmarks for 

equivalent services (either 

internal or outsourced) offered by 

public and private organizations. 

• In order to compare 

performance across the Federal 

government, it must be possible 

to normalize the measures (e.g., 

cost per transaction, cycle-time).

Project Description: Develop 

a standard set of business 

practices for core financial 

management functions (funds, 

payments, receipts, fixed 

assets) to be adopted by all 

federal agencies. The 

document/model will include: 

• sequenced activities for core 

business processes;

• data objects participating in a 

business activity;

• relationships among the 

objects as they exist in the 

actual business activities;

• data elements and definitions 

stored about these objects; 

and

• business rules governing 

these objects. 

Project Description: Develop a 

common accounting code 

structure, including an applicable 

set of definitions, which all federal 

agencies’ new financial 

management systems must 

adhere. The common accounting 

code structure will: 

• accommodate both standard 

government-wide accountingrelated functions and critical 

agency-mission-specific 

accounting functions (data); and

• include standardization of such 

items as Treasury Account 

Symbol/Treasury Account Funds 

Symbol; Internal fund code; 

Budget fiscal year; Accounting 

quarter and month; Program; 

Organization; Project; Activity; 

Cost Center; Object Class; and 

Budget function (and sub function 

code).

Responsible Office: FSIO Responsible Office: FSIO Responsible Office: FSIO

Timeline for Project 

Completion: 3/31/06

Timeline for Project 

Completion: 9/30/06 

Timeline for Project 

Completion: 9/30/06

Attachment 2

Page 77 GAO-06-184 Financial Systems Modernization
Appendix IV: Comments from the Office of

Management and Budget 

Governance Structure for Financial 

Management System Initiatives

OMB

FSIO

Software Performance/

Functionality

CFO Community

Outreach FMLOB Activities

Annual Financial

Conference

Issues

Resolution

CFOC - Financial Systems 

Integration Committee 

Performance Measures

Migration Planning 

Guidance

Standard Business 

Processes, Rules, and 

Data Elements

Common Accounting

Code

Development of Requirements

Testing and

Certification

Attachment 3

Page 78 GAO-06-184 Financial Systems Modernization
A

A

ppendix V: GAO Contacts and Staff 

cknowledgments 

Page 79 GAO-06-184

Appendix V: GAO Contacts and Staff 

Acknowledgments 

McCoy Williams (202) 512-9095 or williamsm1@gao.gov

Keith A. Rhodes (202) 512-6412 or rhodesk@gao.gov

In addition to the contacts named above, Kay Daly, Assistant Director; 

Chris Martin, Senior-Level Technologist; Francine DelVecchio; Mike 

LaForge; and Chanetta Reed made key contributions to this report. 

GAO Contacts 

Staff 

Acknowledgments 

Financial Systems Modernization
Related GAO Products Related GAO Products 

DOD Business Systems Modernization: Navy ERP Adherence to Best 

Business Practices Critical to Avoid Past Failures. GAO-05-858. 

Washington, D.C.: September 29, 2005. 

Financial Management: Achieving FFMIA Compliance Continues to 

Challenge Agencies. GAO-05-881. Washington, D.C.: September 20, 2005. 

Business Modernization: Some Progress Made toward Implementing 

GAO Recommendations Related to NASA’s Integrated Financial 

Management Program. GAO-05-799R. Washington, D.C.: September 9, 

2005. 

Business Systems Modernization: Internal Revenue Service’s Fiscal Year 

2005 Expenditure Plan. GAO-05-774. Washington, D.C.: July 22, 2005. 

DOD Business Systems Modernization: Long-standing Weaknesses in 

Enterprise Architecture Development Need to Be Addressed. GAO-05-702. 

Washington, D.C.: July 22, 2005. 

Army Depot Maintenance: Ineffective Oversight of Depot Maintenance 

Operations and System Implementation Efforts. GAO-05-441. 

Washington, D.C.: June 30, 2005. 

DOD Business Systems Modernization: Billions Being Invested without 

Adequate Oversight. GAO-05-381. Washington, D.C.: April 29, 2005. 

Internal Revenue Service: Assessment of the Fiscal Year 2006 Budget 

Request. GAO-05-566. Washington, D.C.: April 27, 2005. 

Information Technology: OMB Can Make More Effective Use of Its 

Investment Reviews. GAO-05-276. Washington, D.C.: April 15, 2005. 

Information Technology: Customs Automated Commercial Environment 

Program Progressing, but Need for Management Improvements 

Continues. GAO-05-267. Washington, D.C.: March 14, 2005. 

Office of Personnel Management: Retirement Systems Modernization 

Program Faces Numerous Challenges. GAO-05-237. Washington, D.C.: 

February 28, 2005. 

DOD Systems Modernization: Management of Integrated Military 

Human Capital Program Needs Additional Improvements. GAO-05-189. 

Washington, D.C.: February 11, 2005.

Page 80 GAO-06-184 Financial Systems Modernization
Related GAO Products 

Department of Defense: Further Actions Are Needed to Effectively 

Address Business Management Problems and Overcome Key Business 

Transformation Challenges. GAO-05-140T. Washington, D.C.: 

November 18, 2004. 

Business Systems Modernization: IRS’s Fiscal Year 2004 Expenditure 

Plan. GAO-05-46. Washington, D.C.: November 17, 2004. 

Financial Management: Improved Financial Systems Are Key to FFMIA 

Compliance. GAO-05-20. Washington, D.C.: October 1, 2004. 

Financial Management Systems: HHS Faces Many Challenges in 

Implementing Its Unified Financial Management System. GAO-04-

1089T. Washington, D.C.: September 30, 2004. 

Financial Management Systems: Lack of Disciplined Processes Puts 

Implementation of HHS’ Financial System at Risk. GAO-04-1008. 

Washington, D.C.: September 23, 2004. 

Information Technology: DOD’s Acquisition Policies and Guidance Need 

to Incorporate Additional Best Practices and Controls. GAO-04-722. 

Washington, D.C.: July 30, 2004. 

Department of Defense: Financial and Business Management 

Transformation Hindered by Long-standing Problems. GAO-04-941T. 

Washington, D.C.: July 8, 2004. 

Information Security: Agencies Need to Implement Consistent Processes

in Authorizing Systems for Operation. GAO-04-376. Washington, D.C.: 

June 28, 2004. 

DOD Business Systems Modernization: Billions Continue to Be Invested 

with Inadequate Management Oversight and Accountability. GAO-04-

615. Washington, D.C.: May 27, 2004. 

Information Technology: The Federal Enterprise Architecture and 

Agencies’ Enterprise Architectures Are Still Maturing. GAO-04-798T. 

Washington, D.C.: May 19, 2004. 

National Aeronautics and Space Administration: Significant Actions 

Needed to Address Long-standing Financial Management Problems. 

GAO-04-754T. Washington, D.C.: May 19, 2004. 

Page 81 GAO-06-184 Financial Systems Modernization
Related GAO Products 

DOD Business Systems Modernization: Limited Progress in 

Development of Business Enterprise Architecture and Oversight of 

Information Technology Investments. GAO-04-731R. Washington, D.C.: 

May 17, 2004. 

Information Technology: Early Releases of Customs Trade System 

Operating, but Pattern of Cost and Schedule Problems Needs to Be 

Addressed. GAO-04-719. Washington, D.C.: May 14, 2004. 

Information Technology Investment Management: A Framework for 

Assessing and Improving Process Maturity (Version 1.1). GAO-04-394G. 

Washington, D.C.: March 2004. 

Information Technology Management: Governmentwide Strategic 

Planning, Performance Measurement, and Investment Management Can 

Be Further Improved. GAO-04-49. Washington, D.C.: January 12, 2004. 

Human Capital: Key Principles for Effective Strategic Workforce 

Planning. GAO-04-39. Washington, D.C.: December 11, 2003. 

Business Modernization: NASA’s Challenges in Managing Its Integrated

Financial Management Program. GAO-04-255. Washington, D.C.: 

November 21, 2003. 

Business Modernization: NASA’s Integrated Financial Management 

Program Does Not Fully Address Agency’s External Reporting Issues. 

GAO-04-151. Washington, D.C.: November 21, 2003. 

Business Modernization: Disciplined Processes Needed to Better Manage 

NASA’s Integrated Financial Management Program. GAO-04-118. 

Washington, D.C.: November 21, 2003. 

Information Technology: Architecture Needed to Guide NASA’s 

Financial Management Modernization. GAO-04-43. Washington, D.C.: 

November 21, 2003. 

Information Technology: Leadership Remains Key to Agencies Making 

Progress on Enterprise Architecture Efforts. GAO-04-40. Washington, 

D.C.: November 17, 2003.

DOD Business Systems Modernization: Important Progress Made to 

Develop Business Enterprise Architecture, but Much Work Remains. 

GAO-03-1018. Washington, D.C.: September 19, 2003. 

Page 82 GAO-06-184 Financial Systems Modernization
Related GAO Products 

Business Systems Modernization: IRS Has Made Significant Progress in

Improving Its Management Controls, but Risks Remain. GAO-03-768. 

Washington, D.C.: June 27, 2003. 

Business Modernization: Improvements Needed in Management of 

NASA’s Integrated Financial Management Program. GAO-03-507. 

Washington, D.C.: April 30, 2003. 

Department of Housing and Urban Development: Status of Efforts to 

Implement an Integrated Financial Management System. GAO-03-447R. 

Washington, D.C.: April 9, 2003. 

Information Technology: A Framework for Assessing and Improving 

Enterprise Architecture Management (Version 1.1). GAO-03-584G. 

Washington, D.C.: April 2003. 

DOD Business Systems Modernization: Continued Investment in Key 

Accounting Systems Needs to be Justified. GAO-03-465. Washington, D.C.: 

March 28, 2003. 

DOD Business Systems Modernization: Improvements to Enterprise 

Architecture Development and Implementation Efforts Needed. GAO-03-

458. Washington, D.C.: February 28, 2003. 

Customs Service Modernization: Automated Commercial Environment 

Progressing, but Further Acquisition Management Improvements 

Needed. GAO-03-406. Washington, D.C.: February 28, 2003. 

Customs Service Modernization: Third Expenditure Plan Meets 

Legislative Conditions, but Cost Estimating Improvements Needed. 

GAO-02-908. Washington, D.C.: August 9, 2002. 

DOD Financial Management: Important Steps Underway but Reform 

Will Require a Long-term Commitment. GAO-02-784T. Washington, D.C.: 

June 4, 2002.

Customs Service Modernization: Management Improvements Needed on 

High-Risk Automated Commercial Environment Project. GAO-02-545. 

Washington, D.C.: May 13, 2002. 

Tax Administration: IRS Continues to Face Management Challenges in

its Business Practices and Modernization Efforts. GAO-02-619T. 

Washington, D.C.: April 15, 2002. 

Page 83 GAO-06-184 Financial Systems Modernization
Related GAO Products 

Business Systems Modernization: IRS Needs to Better Balance 

Management Capacity with Systems Acquisition Workload. GAO-02-356. 

Washington, D.C.: February 28, 2002.

Human Capital: Building the Information Technology Workforce to 

Achieve Results. GAO-01-1007T. Washington, D.C.: July 31, 2001. 

Business Systems Modernization: Results of Review of IRS’ March 2001

Expenditure Plan. GAO-01-716. Washington, D.C.: June 29, 2001. 

Information Technology: DLA Should Strengthen Business Systems 

Modernization Architecture and Investment Activities. GAO-01-631. 

Washington, D.C.: June 29, 2001. 

Customs Service Modernization: Results of Review of First Automated 

Commercial Environment Expenditure Plan. GAO-01-696. Washington,

D.C.: June 5, 2001. 

Information Technology: Architecture Needed to Guide Modernization of 

DOD’s Financial Operations. GAO-01-525. Washington, D.C.: May 17,

2001. 

District of Columbia: Weaknesses in Financial Management System 

Implementation. GAO-01-489. Washington, D.C.: April 30, 2001. 

Tax Systems Modernization: Results of Review of IRS’ Third 

Expenditure Plan. GAO-01-227. Washington, D.C.: January 22, 2001. 

Tax Systems Modernization: Results of Review of IRS’ August 2000 

Interim Spending Plan. GAO-01-91. Washington, D.C.: November 8, 2000.

Indian Trust Funds: Improvements Made in Acquisition of New Asset 

and Accounting System But Significant Risks Remain. GAO/AIMD-00-

259. Washington, D.C.: September 15, 2000. 

Tax Systems Modernization: Results of Review of IRS’ March 7, 2000, 

Expenditure Plan. GAO/AIMD-00-175. Washington, D.C.: May 24, 2000. 

Executive Guide: Creating Value Through World-class Financial 

Management. GAO/AIMD-00-134. Washington, D.C.: April 2000. 

Indian Trust Funds: Interior Lacks Assurance That Trust Improvement 

Plan Will Be Effective. GAO/AIMD-99-53. Washington, D.C.: April 28, 1999. 

Page 84 GAO-06-184 Financial Systems Modernization
Related GAO Products 

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Financial Statement Audits. GAO/AIMD-12.19.6. Washington, D.C.: 

January 1999. 

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Management System. GAO/AIMD-97-101R. Washington, D.C.: July 9, 1997.

Information Security: Opportunities for Improved OMB Oversight of 

Agency Practices. GAO/AIMD-96-110. Washington, D.C.: September 24, 

1996. 

(192162) Page 85 GAO-06-184 Financial Systems Modernization
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