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OMB’S FINANCIAL MANAGEMENT LINE OF

BUSINESS INITIATIVE: TOO MUCH TOO SOON?

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

MARCH 15, 2006

Serial No. 109–164

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

JEAN SCHMIDT, Ohio

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

DAVID MARIN, Staff Director

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY

TODD RUSSELL PLATTS, Pennsylvania, Chairman

VIRGINIA FOXX, North Carolina

TOM DAVIS, Virginia

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

EDOLPHUS TOWNS, New York

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

HENRY A. WAXMAN, CALIFORNIA

MIKE HETTINGER, Staff Director

TABETHA MUELLER, Professional Staff Member

ERIN PHILLIPS, Clerk

ADAM BORDES, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on March 15, 2006 ............................................................................ 1

Statement of:

Combs, Dr. Linda, Controller, Office of Federal Financial Management,

Office of Management and Budget, accompanied by Karen Evans, Administrator, Office of Electronic Government and Information Technology, Office of Management and Budget ................................................. 5

Kull, Joseph, PricewaterhouseCoopers LLP; John Marshall, vice president, CGI Federal; and Clifton A. Williams, partner, Grant Thornton

LLP ................................................................................................................. 43

Kull, Joseph ............................................................................................... 43

Marshall, John ........................................................................................... 54

Williams, Clifton A. ................................................................................... 68

Letters, statements, etc., submitted for the record by:

Combs, Dr. Linda, Controller, Office of Federal Financial Management,

Office of Management and Budget, prepared statement of ....................... 7

Kull, Joseph, PricewaterhouseCoopers LLP, prepared statement of ........... 46

Marshall, John, vice president, CGI Federal, prepared statement of .......... 58

Platts, Hon. Todd Russell, a Representative in Congress from the State

of Pennsylvania, prepared statement of ...................................................... 3

Towns, Hon. Edolphus, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 90

Williams, Clifton A., partner, Grant Thornton LLP, prepared statement

of ..................................................................................................................... 70

(1)

OMB’S FINANCIAL MANAGEMENT LINE OF

BUSINESS INITIATIVE: TOO MUCH TOO SOON?

WEDNESDAY, MARCH 15, 2006

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 3:05 p.m., in room

2247, Rayburn House Office Building, Hon. Todd Russell Platts

(chairman of the subcommittee) presiding.

Present: Representatives Platts and Foxx.

Staff present: Mike Hettinger, staff director; Dan Daly, counsel;

Tabetha Mueller, professional staff member; Erin Phillips, clerk;

Adam Bordes, minority professional staff member; and Jean Gosa,

minority clerk.

Mr. PLATTS. This hearing of the Government Reform Subcommittee on Government Management, Finance, and Accountability will

come to order. The ranking member, Mr. Towns, will be joining us

shortly, and if he has an opening statement, we will have him

present it when he arrives or have it submitted for the record as

he so chooses.

In 2004, the Office of Management and Budget announced the

creation of its Lines of Business Initiative. This program was designed to consolidate duplicative functions across the Federal Government and ultimately save taxpayer dollars by using a shared

services model to provide back office functions. While the concept

has significant merit, we want to use this hearing today to discuss

several considerations and concerns with respect to this initiative.

The hearing will also provide OMB with a chance to clarify its

guidance to Federal agencies and give this committee a chance to

hear from outside experts and private sector stakeholders. This

hearing will provide a very important dialog on this new and important issue.

Among the concerns that we will discuss today are timing issues,

contractual relationships between host and customer agencies, the

current state of Federal financial management, and whether we

are poised to make effective use of the shared service model. We

will also examine the Center of Excellence concept. It’s important

to note that of the four COEs, only one has received a clean audit

opinion, with no material weaknesses or reportable conditions, and

is compliant with the Federal Financial Management Improvement

Act of 1996.

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If this initiative is to be successful, we must ensure that all

stakeholders are fully informed and that the user community is

ready, willing and able to embrace this initiative. Further, the Center of Excellence concept should advance the goals of the Chief Financial Officers Act and FFMIA, strategic financial management,

timely information for program managers and effective stewardship.

Our witnesses today will provide the subcommittee with insight

on the creation of Centers of Excellence and how Federal agencies

can best continue to improve their financial management and reporting. We’re pleased to have two panels of witnesses today. On

the first panel will be the Honorable Dr. Linda Combs, Controller

at the Office of Federal Financial Management at the Office of

Management and Budget. Dr. Combs is accompanied by Ms. Karen

Evans, Administrator for the Office of Electronic Government and

Information Technology at the Office of Management and Budget

who will participate in the question and answer portion of the program.

Our second panel will include Mr. Joseph Kull, partner at

PricewaterhouseCoopers; Mr. John Marshall, vice president at CGI

Federal; and Mr. Clifton Williams, a partner at Grant Thornton. I

look forward to the testimony of each of our witnesses. I also appreciate the efforts in preparing both your written statements and

your oral statements for today’s hearings.

As I say, when Mr. Towns arrives, after our initial opening statement, if he has a statement to make, otherwise we’ll complete the

opening statement of our first witness and then go to Q and A.

[The prepared statement of Hon. Todd Russell Platts follows:]

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Mr. PLATTS. It is the practice of the committee if I could ask both

our panelists to stand and take the oath.

[Witnesses sworn.]

Mr. PLATTS. Thank you. The clerk will note that the witnesses

affirmed the oath.

The subcommittee appreciates your testimony and preparation

for this hearing and the knowledge and insights that you’re able

to share with us, and with that, Dr. Combs, if you’d like to proceed,

and I think we’re set at 5 or 6 minutes but we want to make sure

you have a chance to cover, whatever you need to complete your

opening statement, and then we’ll move forward. Thank you.

STATEMENT OF DR. LINDA COMBS, CONTROLLER, OFFICE OF

FEDERAL FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET, ACCOMPANIED BY KAREN EVANS, ADMINISTRATOR, OFFICE OF ELECTRONIC GOVERNMENT AND

INFORMATION TECHNOLOGY, OFFICE OF MANAGEMENT

AND BUDGET

Dr. COMBS. Chairman Platts, Congressman Towns and members

of the committee, I thank you for this opportunity today to appear

before you to discuss the Financial Management Line of Business

Initiative. I am delighted to provide you with an overview of the

Financial Management Line of Business and to explain how it supports our mutual and overarching objective of ensuring that Federal managers have accurate and timely financial information for

decisionmaking. I greatly appreciate the questions that you asked

me to address in my written testimony.

I believe that this subcommittee is identifying very important

questions, and I look forward to working with you to answer those

questions. This afternoon I would please offer that I’d like to use

the time I have to share with you my overall vision for financial

management for the Federal Government and to talk a little bit

about how the Financial Management Line of Business actually fits

in with that vision.

First of all, I truly want to emphasize that I share with you that

this vision is a very long-term vision and it is not one that will be

achieved overnight. My vision is based upon some of the challenges

that we face today in our overall financial management arena and

the opportunity we have to give our financial leaders the tools they

need to meet those challenges.

And if I could for just a moment I’d like to share with you what

I envision. I envision that each agency will have a financial system

solution that seamlessly exchanges information among its own organizational components and business systems; in other words,

they are able to talk to one another within each agency. Financial

management systems across the Federal Government will eventually seamlessly exchange information and provide leadership with

essential financial information for decisionmaking.

I envision that Federal agencies will operate their financial organizations at the right cost by following standard processes that

strengthen internal controls and reduce financial risk in government programs. I envision that there will be transparency in terms

of financial management objectives, transparency in the options

6

that agencies can take to meet those objectives, and transparency

in terms of how we measure the result of those efforts.

I believe that agency Chief Financial Officers will spend more

time collaborating with program managers on improving the actual

stewardship of taxpayer resources and delivering the right financial information to inform smarter decisions and spend less time

dealing with the heroic efforts required for compliance and for daily

operations.

I envision that there will be a limited number of truly excellent,

high performing and stable shared service solutions providing a

competitive alternative both to the public and the private sector,

and that price and quality will both be taken into consideration for

agencies that are ready to modernize their financial management

operations.

I envision that future financial management leaders will indeed

be as committed to excellence as the dedicated professionals that

I have the honor of working with every day now. To ensure that

we remain on the right track, we must share our feedback and our

programs more often, we must develop and refine our plans more

strategically, we must hold ourselves even more accountable for

outcomes, and, as with the financial management line of business,

we must identify more options that actually deliver true results.

Rest assured that I will continually work to overcome the barriers of uncertainty and open the roads of opportunity. I look forward to continuing to work with you to achieve this vision. And the

remainder of my written testimony is submitted for the record.

[The prepared statement of Ms. Combs follows:]

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Mr. PLATTS. Thank you, Dr. Combs. Your written testimony is

accepted in the record, and again I appreciate the in-depth preparation of that testimony and your statement here today.

First, I’d say that your goal here is one that we do share and

that we truly get to state-of-the-art 21st century financial systems

across the Federal Government and find what is the best match for

each individual agency or department depending on their own circumstances.

You mentioned that you are and continue to work through clarification of what is expected and I think that’s where we’ll start

with some questions. In a broad sense in some of the written documentation in the President’s budget and your memo of last December 16th in dialog between the committee staff and your staff as

to what is the mandatory nature of the COE model and specifically

for Federal agencies, I’m uncertain based on what we’ve been given

whether it’s mandatory that every agency will either become a

COE within the Financial Management Line of Business, or migrate to one, or is it mandatory that they just have to do an analysis of whether they need to become one or do one but not have to

necessarily become one to migrate. So if you could clarify that specific and start there.

Dr. COMBS. Thank you. First of all, we must start with the specific systems that need either new financial systems or an upgrade

to their financial systems. Those are the ones that would be in the

category that you just asked about. And the answer is they must

consider the step of either becoming a COE or they must consider

migrating to a COE.

And as you mentioned in your question a moment ago, one size

does not fit all. We are aiming to look for alternatives for specific

agencies. First and foremost, they must make good business decisions as they do the analysis, and I must also add they’re not in

this alone when they’re looking to make financial management

changes. They have a wealth of services at their disposal in OMB

to help them through.

We are looking forward to guiding many of these efforts as we

go along to make sure that they have all the right information that

they need. We’re constantly updating and upgrading some of our

information that we’ve learned over the past few years, and will

continue to do that. We’re continuing to get information from both

the private sector as well as from you folks about what you think

is working and what you hear. We welcome those kinds of opportunities. But they do need to consider the step and we just think they

first and foremost have to make a very good business decision.

Mr. PLATTS. So, one, if they’re not making a major rewrite or

overhaul of their financial management systems then they really

don’t fall into this area at all. It’s only if they go to make a change

in their financial management systems then this analysis has to be

done.

Dr. COMBS. Well, the thing I would clarify on that is that there

are certain thresholds that they need to look at and I think within

the financial management arena, as part of our integration here

with e-Gov, there are certain thresholds that they need to meet and

this would kick in.

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Mr. PLATTS. Maybe we can expand so I know what those thresholds are and because some of the confusion, Ms. Evans, in your conversations with my staff, it’s different than what we’re hearing

today, that it is mandatory that everybody’s at some point going to

have to become a COE or migrate to a COE.

Ms. EVANS. And so this is where the partnership comes in and

this is the discussion that I have had with your staff, is the way

that we constructed the governmentwide business case based on

the analysis that came from the interagency task force. So there

was a task force that made recommendations to us, there is a

threshold, as Dr. Combs has laid out, and the IT analysis, the IT

portion of this is mandatory. And so that, for lack of a better description, would be similar to application hosting.

So you do have to do that analysis and you do have to go forward. However, there is a piece that you brought up that if you

aren’t doing a major upgrade, if there isn’t a major piece, so if an

agency has a plan in place right now to implement a financial management system and we are monitoring that through several different processes that we have in place, if they meet all their milestones to go forward with that implementation from an IT perspective only, they don’t fall into making the analysis of becoming a

Center of Excellence or going to a Center of Excellence until that

plan—they don’t meet the milestones in the plan. That’s the

threshold.

So if I’m an agency and 2 years ago I had a plan that’s in place

and I have been executing that plan accordingly and going along

meeting my milestones, I’m within the policy where we say it’s like

10 percent of cost schedule and performance, and they’re going

along, then they continue along with that because we don’t want

to jeopardize the objective, and that is having good financial management information and having a system in place that allows you

to manage that. But if they fall off of that plan and say they have

to go back and rebaseline because they’ve missed stuff.

Mr. PLATTS. So if they have a plan in place and they’re meeting

their stated benchmarks or thresholds that were identified, then

it’s not mandatory to become a COE or migrate?

Ms. EVANS. Not at this point in the life cycle. This is all based

on the life cycle of the investment. So as long as they continue on

the path and they’re doing well, we wouldn’t go to that agency and

say stop everything you’re doing.

Mr. PLATTS. How about a specific example is NASA, where they

are with their enterprise resource system, and they’ve taken some

big steps trying to reorganize their financial management. How

would this apply to them?

Ms. EVANS. In the particular case that we discussed with your

staff, with NASA, they do have an extenuating circumstance where

a vendor would come in and out of their control there’s a change

that’s occurring within the execution of that plan, where they have

to upgrade based on the product that they had selected.

Because that’s a major change in the system, that is where we

then ask the agency to go and do the analysis, does it make sense

for you to continue on this way making a good practical business

decision analyzing across the board of what does it mean if I continue on this path doing it myself or I need to look at can I share

24

the resources of other agencies going forward who will have this

similar issue that NASA has because that particular vendor is upgrading.

Mr. PLATTS. I want to try to make sure I’m following here because your statement that with the IT component, the IT portion

it is mandatory for any IT investment——

Ms. EVANS. Yes.

Mr. PLATTS. That you’re going to become a COE or migrate to

one, not just do the analysis.

Ms. EVANS. No. Let me restate that. It is mandatory that you

have to do the analysis and that you have to meet the threshold

in the business case, OK. So the business case, in the governmentwide business case it’s constructed in a tiered approach, so when

you look at it, the first tier, which is the IT application hosting

area, that is where you would become either a service center or a

center, or get your services from somewhere else for the application

piece only. So it doesn’t mean that all the financial services that

the Government does would automatically move to the Center of

Excellence. So there’s a real fine line in the way that you’re saying

it.

Mr. PLATTS. So for every department, agency, for the application

hosting part of every department agency, it is mandatory that either you are a COE or you migrate to a COE.

Ms. EVANS. Yes. That you do that analysis. The basic black and

white line is yes, sir, from the IT portion.

Mr. PLATTS. I think our dialog right here is part of the confusion

within the financial management sector of the Federal Government, is that just getting to what is mandatory if anything I don’t

think has been real clear, and I think the bottom line is that portion is mandatory.

Ms. EVANS. Yes. A portion of it is mandatory the way that the

business case was constructed, and the simplest way to explain it

is the application hosting. So it’s like where I buy my servers from,

where my servers would be housed, that type of piece. And that is

the floor, that’s the basic mandatory piece. So think of it as does

it make sense that NASA has to buy a whole host of servers and

then DHS would buy a whole host of servers and Justice. So it’s

like the hardware and then the pipes that run that.

Mr. PLATTS. When you go beyond that, then it’s maybe you have

to migrate or become a COE, depending on whether you’re meeting

benchmarks in your delineated financial plan.

Ms. EVANS. That’s where it kicks over to the analysis that

Linda’s team is doing.

Mr. PLATTS. You talked about the benchmarks. Can you expand

on that and what you mean by where the benchmarks are achieved

or reached?

Dr. COMBS. I think the best way to describe it is that if an agency comes in and they have compelling evidence that they have a

best value or a lower risk alternative, we really want to help them

consider that. So when we say, as Karen just pointed out very well,

a COE or the best alternative, we’re willing to listen to them if

they have conscientiously considered what good business decision

there is to be made relative to that financial management piece.

25

So I think exceptions to this policy will be made based upon good

business decisions when it kicks over to me at that point, as Karen

just made.

Mr. PLATTS. I guess before it gets to you, Ms. Evans, with it

being mandatory on the application aspect, obviously—what assessment is done there as to whether they need to become a COE or

are determined to be a COE or migrate to one. There’s an assessment done I guess there first before that mandatory effort takes

place.

Ms. EVANS. Yes. What happens is a series of activities, the first

starting with the business case that an agency would submit. They

submit that on an annual basis to us for their IT investments and

we go through an extensive analysis of how they manage IT overall

in an agency.

So this is one of many services that they provide. So we look at

all those business cases, we analyze those, we also get their cyber

security information through our annual reporting requirements.

We look at a whole lot of things, their architectural efforts, and

that is their overall plan, what they have today, what they’re moving toward in the future, and we look at that in totality along with

their ability to execute.

So we also get on a quarterly basis reports from the agencies of

what we call a high risk investment. We have a list of what we

have as high risk investments in each of their portfolios. So we

monitor their performance on a quarterly basis as well.

Mr. PLATTS. And then you’ll make a determination that yes,

you’re a COE?

Ms. EVANS. Well, we made the determination, and this is another

one where I think I agree we need to do a better job communicating out what needs to be done here. What we do is we also have

a due diligence list. If an agency comes in and says I have decided

that I do want to be a COE, we have very specific instructions then

that go out to the agencies every year on an annual basis so that

they can make this determination through their internal capital

planning process. When we go through this list, and what they

have to do is construct their business case in a way that shows this

is what it costs for me to maintain this service for myself, meeting

all the objectives that they have to meet, the financial management, measuring that information, doing everything that comes out

of the policy area from Dr. Combs’ area.

Then what they have to do is construct the business case in a

way of showing what is the incremental cost associated with bringing on additional customers, and then we evaluate that business

case based on their capability to provide the service.

So what we say, and if you go back when we announced these

in the President’s budget the very first time, is we said this group

of people appear to have the capability to become Centers of Excellence. So it’s not like boom, you’re a Center of Excellence and that’s

it and all the business comes to you. We were very careful about

saying they appear to have the capability to be able to do this

based on the way that they constructed the business case and their

business plan in order to meet the same objectives that they have

now and then take on additional services.

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Mr. PLATTS. So your determination is they have the capability,

but you tell them so they know whether they have to migrate to

somebody else or stay in-house.

Ms. EVANS. From an IT perspective we work through these on a

case-by-case basis. If you haven’t been determined to have the capability in this area to be a financial management Center of Excellence, then their existing plan, so we’ll go back to the first answer

I gave, they continue on those existing plans that they have to

meet their financial management system implementations unless

we have notified them through this ongoing monitoring process

that we have that you have missed all your major milestones and

then we go back and work with the agencies, just as Dr. Combs

said, to work on a plan to mitigate that risk and work through with

them what is the best solution for that.

Mr. PLATTS. That agency knowing here’s what we’re doing or

here’s what we think we’re doing, perhaps. At some point you have

to give them a clear answer that you’re authorized to go forward

as delineated, or nope, you have to migrate elsewhere. You have to

make that cut.

Ms. EVANS. Sure. We do that every year through the President’s

budget process. So when we get these business cases in and we

evaluate them and through the ongoing oversight that we have

through the quarterly reports that we get, I mean it’s a constant

dialog so it’s not like once a year we give them this information

and they don’t know what they’re supposed to do for the next year.

So we get this information and it’s a constant dialog both with my

staff and Dr. Combs’ staff. So an agency knows maybe not as clearly as we need to do this and that we have to continue to put frequently asked questions out and update the policy, but they have

based on the way that we’re working this and the process that we

have, they know what their plans are and how they have to—and

the plans that we’re holding them accountable to.

Do we need to be clearer? I would say there are a lot of questions

out there that we need to answer as we move through this. And

as Linda’s vision was, this is not going to happen overnight; this

is a longer term effort.

Mr. PLATTS. How about a specific example, the 600 pound gorilla,

Department of Defense, 4,200 different financial systems out there.

If it’s mandatory that they are either becoming a COE or migrating, based on my 3-plus years of chairing this subcommittee, DOD

has no chance of being a COE any time soon. Hopefully some day

or some lifetime, perhaps, but I can’t imagine who is out there

ready to be a COE to say yes, we’re ready to take on all of your

application hosting. Just seems like an impossibility. So I assume

it is not really mandatory for certain agencies. Is that a fair assessment?

Dr. COMBS. I think that is a fair assessment. I think one of the

things that I’d like to add, to clarify, when we get to the point

where we’re having a migration document, and we’re in the process

as I mentioned in my written testimony of upgrading that documentation which we are going to share with this committee and

with a number of other outside entities by the end of this month,

it will spell out more completely a menu of shared services and

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more completely the due diligence checklist that Karen spoke

about.

There’s some changes that we need to make to that and we’re

planning to do that.

I think the specific question you asked, Mr. Platts, about the Department of Defense, the transition plan that was submitted by the

Department of Defense was looked at very favorably I think by the

General Accounting Office and that does include a lot of business

transformation, not just the financial management piece of that,

but that is all included in that entire business transformation, and

as the financial systems investment piece of that we need to continue to work with them to see what they can do now because anything we do to help them now will help them with their audit, it

will help with internal controls and it will make them a more excellent financial management arena.

Mr. PLATTS. So if you’re at DOD though, so the answer is to the

mandatory requirement, it’s not mandatory because of the reality

of their circumstances?

Ms. EVANS. Right. They submitted their transformation plan

which they’re required by law and there are several pieces to that

transformation plan which all of us have been involved in. So

they’re moving through that part. So from our perspective that

would be what Dr. Combs talked about earlier where there would

be expectations we need to make good business decisions in order

to achieve the goal, and the goal here is transformation of many

things happening within DOD, one of which happens to be the financial management systems.

Dr. COMBS. Can I just add one thing to that? When I talked

about this being a very long-term effort, I’m really talking longterm. I’m talking about some of the long-term you mentioned when

you gave me your question a moment ago about Defense. Any time

we start on this journey we’re going to have to look at some things

that are not optimum right now but they’ll get us to where we

eventually want to go. When we go on any kind of journey, we may

have to go across a mountain, we make look at some stoplights

along the way. All of those things serve us in getting to the longterm vision. There may indeed be some, ‘‘best practices or some

shared services’’ right now internally within the Department of Defense that they can use and can standardize and consolidate and

make use of right now. If that’s the case, and as we go through this

we will definitely look at those internal shared services as a potential mid-level step for them. And I think that is a reasonable and

reasoned approach as we go through this, not thinking that’s going

to be the most wonderful long-term solution, but maybe it is.

Maybe that’s where we need to be with a department like that.

Mr. PLATTS. If we set DOD aside, because it certainly is a unique

animal, I mean the size of the department and the challenges it

has, we look at the rest of the departments and agencies and with

the four COEs that are out there right now certainly don’t have the

ability to assume the responsibility for all the other department

agencies, and everybody is not going to be a COE overnight. So

what is your timeframe for everybody else becoming a COE or migrating, and how does the private sector factor into here, and

maybe a second part of it is when we look to the private sector—

28

I guess the first part, right now for a department or agency out

there, are they going to do a more theoretical analysis of becoming

a COE versus migrating, since in reality they aren’t one and can’t

migrate, so in a sense it’s theoretical right now?

The second part is if they’re going to migrate to the private sector, will an A–76 study have to be done for that to occur?

Dr. COMBS. Well, first of all, there is no requirement that they

actually move to a shared service solution at a specific time.

Mr. PLATTS. But they have to be a COE or move at some point,

right?

Dr. COMBS. Well, it’s one option that they are looking at.

Mr. PLATTS. Now I’m backing up because I thought we just said

it’s mandatory that at least on one part, the IT application hosting

that, yes, you must be a COE or migrate. So it’s not an option.

Dr. COMBS. That’s the IT perspective, in that they would be that

from the IT perspective.

Mr. PLATTS. On the IT perspective, what are they to do today if

they’re not a COE and there is no feasibility of everybody migrating to an existing COE, in the next year what do all the departments and agencies do regarding their IT portion?

Ms. EVANS. The way that we have constructed this and the way

that we’re working through this with the agencies is that they

would do, the business case itself only assumed that two major departments would start down that path. That doesn’t mean that you

are completed and totally migrated this fiscal year. What it means

is you start down the path and you do everything that Dr. Combs

was talking about. You look at this as one of the options. You look

at the IT portion of this and you say OK, I’m not going to do this

any more internally within my agency. I have a contract up for recompetition that provides this portion of the services. What is the

best way for me to compete that service.

So they start the planning activities moving down that path, providing all of the activities that they need to have. As Dr. Combs

said, there is not a time line that says these two agencies will be

completed at the end of this fiscal year, those five at the end of

that fiscal year. It’s that you are starting down this journey, as Dr.

Combs has outlined for us, and you’re doing the analysis and you

have a plan that you’re going to implement that’s going to address

the mandatory portion. It’s not like you can turn it off 1 day and

turn it on the next day over at your other service provider.

So you’d have to have the plan, you’d have to migrate that, and

you’d have to mitigate the risk.

Mr. PLATTS. On that portion that is mandatory do you not have

a specific timeframe, these two this year, five next year, that within 2 years, 5 years, 10 years?

Ms. EVANS. The business case assumes 10 years in order to realize the benefits, that this would all be analyzed and done within

a 10-year time period.

Mr. PLATTS. So that everybody would be migrated to a COE or

become a COE within 10 years on the mandatory portion.

Ms. EVANS. Yes.

Mr. PLATTS. On the non-IT portion, that assessment will be done

as to whether they continue on their existing, like NASA, or have

to do something different with the COE.

29

Dr. COMBS. Yes. I would say, you asked about the private sector

in your question as well, and we’ve had a couple of agencies fairly

recent, EPA and Agriculture have both submitted proposals where

they’re considering both the Federal as well as the commercial

COE at the same time, and we think that’s healthy competition.

Mr. PLATTS. And the Circular A–76, is that review required as

part of that?

Dr. COMBS. Yes. If it’s 10 employees, the specific regulations that

are required of that. And we think that competitive migrations are

a good thing.

Mr. PLATTS. It would seem there’s going to need to be a healthy

partnering with the private sector to handle the volume we’re talking about.

Dr. COMBS. Absolutely. That’s an excellent point. Because we

think that we can only get to the vision that we laid out in the very

beginning if we have a very healthy relationship and collaborative

effort both with private and public sector shared servicing arrangements.

Mr. PLATTS. The 10-year timeframe that we talked about is similar to Department of Transportation, which is kind of a model out

there. Basically what they’ve done in getting to where they are, my

understanding is they are a good model but they’re still kind of

working on it. So when we talked about all departments and agencies is it 10 years from kind of when they begin the process or 10

years from now for everybody? I’m not sure what is envisioned,

how that general timeframe of a 10-year span applies.

Dr. COMBS. Well, thank you for bringing that up because that

does bring up another important opportunity we have here. We’d

like for it not to take 10 years for every agency to do that, we’d

like for it to be done sooner, and because it was the first in that

it’s the only still yet department that’s operating on one instance

of software for their entire financial management system, we think

that it is a good model and we very much would hope that there’s

some other agencies and departments that can learn from the experiences that they had and that there are opportunities for sharing

those best practices and maybe with future endeavors we can accelerate that time line a little bit because some of the departments

are going to have more data integration difficulties than others,

and having been at DOT, I would say we had some very large challenges there with the data integration piece, and that is one of the

more troublesome aspects of incorporating into any new financial

management system as you’re aware.

So all of those conversions that have to take place are very troublesome and take up a lot of time, energy and effort. But we would

hope we could learn from that and as we develop further work

through this, we can standardize more, we believe, and we can

make things more transparent, and we believe that we can have

better opportunities and that maybe it won’t take quite that long

on the next one.

Mr. PLATTS. And I hope that’s accurate, that we get better and

better at it and learn from each other within the departments and

agencies, and if we could get DOD to replicate DOT on that one

plan or one providing system, that would be a miracle. But we

won’t hold our breath on that effort.

30

I want to move on to a couple other areas. Just what is expected

and the timeframe for the departments and agencies. When we talk

about the migration, what’s mandatory, what’s not, the IT part versus the non-IT portion of the financial management systems. That

we work hard at making sure that’s very clear out there to the departments and agencies and what their expectations are so that

buy-in occurs if we’re going to be successful. We certainly need that

from everybody. While we hope it’s quicker, that from some of the

hearings we’ve had and regarding expenditures of funds to adopt

new systems that find out that we spent $100 million and didn’t

get what we need, using the Bureau of Public Debt, which seems

to have taken a very methodical approach in doing what they’re

doing, that model of methodical deliberateness is appreciated so

that we do, whatever we migrate to, COEs or work with entities

that become COEs, that those models are truly followed in all aspects.

I think, Dr. Combs, you mentioned earlier about the service level

agreements and getting more guidance I think by the end of this

month. That part of that, if there’s a failure of a COE to perform

up to par, expectations, that the host COE is going to bear the cost

of the new migration, wherever it’s to. Can you share whatever you

have today while you’re formalizing or finalizing this guidance and

is there any kind of arbitration plan envisioned as would be in the

private sector? Typically, there it gets to litigation, ideally arbitration. But what do you envision for how to deal with that service

level agreement between a COE and somebody who’s migrating to

that?

Dr. COMBS. I think we’re continuing to look at and encouraging

good customer service and dual accountability between anyone that

would engage in a Center of Excellence activity or shared service

with their service provider and the customer agency. And any way

that we can work through the transition of making sure that service level agreements are laid out carefully up front, and one of the

things we’re going to be looking at in the document I mentioned is

trying to make sure that we’ve built in some of the best practices

and some of the very best encouragements we possibly can to have

that accountability between those two parties.

But if something should happen and one does not live up to their

agreement, then I think for the most part we will look at things

that are going on today. I mean there are shared servicing arrangements that are going on today in many different aspects of what

agencies, one agency does for another. There are lots of agreements

out there. And most often those are able to be settled between the

agencies. When that does not happen, OMB plays a role, generally

in arbitrating between those two agencies. And for now, on this

path I would envision that’s about where we would end up.

Now in terms of the mechanisms specifically, we need to look at

that, and I appreciate you bringing it up. We look forward to any

other arrangements that you feel like you are aware of and we’d

be happy to look at those so we continue to evaluate best ways of

doing that.

Mr. PLATTS. As part of that it will be kind of two types of evaluation where OMB plays that role today between agencies, but if we

are going to use more and more the private sector COEs, then it’s

31

a different ballgame because it’s not internal and so you have a

whole different legal arrangement. Do you envision that being some

of the contractual terms of a private sector COE up front agreeing

that whoever the identified body, if it’s OMB, or go to court, or are

envisioning something more internal still to arbitrate yes, you

failed to do as you contracted to and you bear the cost?

Dr. COMBS. Well, as I understand it, there are already grievance

processes in place to deal with private sector entities of that nature. I was speaking to the public sector.

Mr. PLATTS. Grievances within the typical court system?

Dr. COMBS. Within the systems that are laid out already within

the Federal Government where there are some grievance systems

already laid out for contractors that do not perform.

Mr. PLATTS. So basically nothing new, kind of following the existing procedures in place?

Dr. COMBS. Correct.

Mr. PLATTS. For disputes that exist. That does worry me a little

bit in the sense of in some of the oversight hearings we’ve done

where financial management systems at DOD, $100 million spent,

and I ask how much has been recouped and the answer is usually

none that I know of but we’ll check into it.

In these areas it seems that when it comes to Federal Government getting its money back, it seems often to be a lot harder or

less common than when it’s two private companies that one or the

other fails.

Dr. COMBS. I certainly appreciate your thoughts on that. We’ll

look at that and see if there are any different opportunities we

could look at relative to doing something a little bit different.

Mr. PLATTS. Thank you. In your written statement in talking

about the current state of financial management, and we talked

about the nine agencies that are FFMIA compliant, in our documentation there’s only five that are deemed FFMIA compliant per

the requirement that the auditor report—that an auditor finds

they’re in compliance, and that is only five agencies. So I’m wondering what the basis of OMB’s assessment is for when an agency

is FFMIA compliant.

Dr. COMBS. The FFMIA allows for both the auditor and the head

of the agency to make FFMIA determinations and FFMIA specifically requires that the independent auditor report whether the

agency financial systems comply with FFMIA. It also requires that

the head of the agency make a separate determination based on

the financial statement audit as well as any other information

deemed relevant. And when we use that definition, we have Departments of Commerce, Education, HUD, Labor, State, EPA, National Science Foundation, OPM and the Social Security Administration as of fiscal year 2005 that were in substantial compliance

with FFMIA.

Mr. PLATTS. By that internal assessment the agency head, not by

the auditor’s determinations.

Dr. COMBS. Having been there, I can assure you that the agencies certainly look at that, the agency head looks at that, but the

agency head, i.e., the secretary or the administrator of an agency

does have the determination.

32

Mr. PLATTS. Section 803 says FFMIA requires the auditor to report whether the reporting entity’s financial management systems

substantially comply. So what you’re saying is that the auditors

have independently said 5 of our 24 major agencies comply, 4 other

agency heads have said well, we disagree with the auditors’ opinion

and we deem our agency to be in compliance. Does that kind of defeat the purpose of that outside audit so it’s not your own in-house

decision?

Dr. COMBS. I don’t think it defeats that because, as I said, having

been there, I know that is a heavy, heavy weighted part of an

agency head’s determination, but they do have the responsibility if

there is other relevant information that they deem to be relevant

to take that into consideration.

Mr. PLATTS. It seems that if I were being audited, I would certainly want my auditor to know that other information in making

their determination because I’d rather not have an auditor say to

everybody you’re not in compliance with the law. So I guess I give

greater weight to the independent audit in assessing the financial.

And that question goes to where we are. The fact even if we’re

at nine, less than half are FFMIA compliant, and the intent of that

act was to improve the business processes across the Federal Government and we clearly have a ways to go if 15 of our 24, even internally, are believed to be in noncompliance, if we use the independent audits, 19 of our 24 are not. It’s that foundation, our focus

of getting to FFMIA compliance would probably help us moving forward on again a shared goal but just that we’re not jumping ahead.

Dr. COMBS. No doubt. I share your concerns about compliance

and we continue to work on that through our internal controls as

well as we have not actually looked I don’t believe at that implementation guidance on FFMIA since 2001. We’re currently looking

at that and we certainly will take your thoughts into consideration.

Mr. PLATTS. And efforts like the regulations on internal control

assessment and compliance, I mean, I agree, you have taken important steps toward that and that we not lose focus on that as we’re

looking at other aspects such as the line of business approach.

Related to again that foundation is that governmentwide accounting code that you hope to get to by September 30th. Can you

expand on what you expect to have or hope to have at that timeframe?

Dr. COMBS. By September 30th the plan, and a lot of the project

management plan we hope to have in place; we certainly don’t expect to have the governmentwide accounting code spelled out and

the expectation is not that agencies are going to have to do anything by then. We expect it’s going to take us a full 6 months now

to look at the project management plan for doing that.

We feel like this is part of the standardization that we’re both

seeking and we feel like if we can just get a set of definitions and

some common understandings about what the governmentwide

code structure would look like, that will help us all in many, many

different ways. I think the one thing that we are sure of is that

we’re doing an assessment now to determine exactly where each

and every agency is at this particular moment and even standardizing their own internal accounting codes. And one of the things I

think that you’ll hear both from the public and private sector folks

33

who deal with this is that if you’re going to have a better financial

management system, you have to have good data quality and it’s

got to be consistent. And the more we standardize, the better data

quality we’ll have and the more consistency we’ll have.

Consequently, setting up for the things we need to do with audits

governmentwide later on and internal audits themselves and the

first point of my vision that I articulated earlier related to making

sure these systems talk to one another internally, this standardization will help us with that. But the September 30th date that we

have put on ourselves here is for our own internal planning.

Mr. PLATTS. So on the internal layout what you hope to achieve

and then go to the departments and agencies and developing an actual code?

Dr. COMBS. They’re actually helping with it. Part of the as-is status that we have is that one of the things we’re going to ask all

of the departments and agencies to share with us what their current accounting system permits. And I know both from my EPA experience and from my DOT experience and the stream of accounting code that we had in both of those places as we standardized

it across the entire enterprise of EPA and across the entire enterprise of DOT, there were certain elements of that standard accounting code that needed to help us with our financial management information. That was set aside in the stream of accounting

code and the standardized code. Then there were certain other elements that the agencies needed in order to do their own business

management within their own individual agencies within the department. And I think we can accomplish something like that governmentwide.

Mr. PLATTS. The reason for the kind of where you are and what

you’re hoping to have is again kind of that cart before the horse

question, and you touched on in your answer about standardization

being so important long term from the deficiency standpoint and

things and I asked about the FFMIA compliance, and my understanding is by those outside auditors’ opinions, since we only have

five departments or agencies compliant with FFMIA, only five that

are complying or using the standard general ledger as they’re supposed to, so we have a long way to go to get compliance with a

standard that’s already out there.

How are we going to add on a new standard or a new uniformity

when we haven’t yet achieved compliance? That’s why it’s kind of

all wrapped together, those questions or those issues, to what

comes first. And the existing law is FFMIA compliance. And if we

keep focus on that, some of the things you’re doing are about

FFMIA compliance, internal controls especially, that will help us

then get to maybe the next level, which is a governmentwide accounting code and COEs and consolidations of shared services.

I guess a subtle or maybe not subtle reminder of the laws that

Congress has already said are important should not be lost in the

effort of new initiatives.

Dr. COMBS. Well, I can assure you, it will not be lost. We have

monitored, since this administration began, the President’s management agenda. That is one of the criteria that we monitor, always, quarterly; and for many of these departments and agencies

we monitor it monthly. It is all in our high-priority checklist. I

34

have in my notebook that I look at, every single day, which agencies are in compliance and which ones are not.

Plus, it is transparent. There has to be a notation on everybody’s

part that says there is a disagreement between the auditor and the

agency head, so that is not taken lightly. And there must be compelling evidence for an agency head to make that determination.

So, one, it will not be lost. And, two, I don’t consider this a new

initiative. I consider this to be an ongoing attachment to what we

are already doing in terms of standardization.

Mr. PLATTS. And I certainly readily acknowledge here, and with

my conversation with Clay Johnson about these issues, the efforts

of the administration, the President’s management agenda from

day one, the first year; you know, that is it is important that we

have and acknowledge that we have an administration that is focusing on substantive financial management reforms and improvements and staying with it. We are seeking to do so with you as a

partner.

Dr. COMBS. I must say we truly appreciate the collaborative operations that we were able to work through together, because without

the exposure and without the transparency that we both created,

we would not be where we are today. So we thank you for that.

Mr. PLATTS. And when we get to our second panel, I know one

of the testimonies of at least one of the witnesses talks about that

foundation, that internal control, and that kind of relates to

FFMIA compliance; that all these feeder systems, if they are not

working well, then we can migrate everybody wherever we want,

but if the data coming in is unreliable and inaccurate, it doesn’t

matter where we migrate to, we still get the same outcome: bad information that can’t be acted upon.

So that brings us back to that core level of where we need to

keep important focus as we look at strengthening the whole system, the whole political process.

I am going to try to touch on a couple of other issues. What we

will probably do, because it is my understanding, the remaining

votes are in about an hour; is that right? Sometime after 5, or

maybe sooner. And with the second panel, we will want to get to

them, too. So we may ask you to followup some of the questions

just in writing, that we may not get to, that we would like to have

that clarification for us and for the public at large as far as all the

players and partners in this effort.

So now the tough thing is, where to go to, all the areas I want

to cover.

Why don’t we talk about the issue of how agencies, in determining if they are going to be their own COE or migrate, one of the

issues is going to be their ability to make the investment. And then

that relates to their financial structure. And if it is an agency

under compliance with the Economy Act versus franchise fund

agency, there is certainly different abilities from their capital opportunity, year to year.

How are you going to acknowledge that or deal with that as

agencies make these assessments of what they can do or would like

to do as far as keeping it in-house or having to migrate elsewhere?

Dr. COMBS. I will say that our ultimate goal for each of the COEs

is that they should be in the best position possible to meet the

35

business needs of their customers. And I think one of the things

that we are continuing to look at right now is how to evaluate

these different financing alternatives. And we look forward to

working with you to see which is the best path forward.

Mr. PLATTS. In the sense of how to fund them.

Dr. COMBS. Correct.

Mr. PLATTS. Whether it is direct appropriations or revolving

funds? That is something you are assessing now?

Dr. COMBS. Yes. We are looking at that right now, and we would

welcome thoughts from you related to that; because, obviously, if

you are in the private sector and you decide you want to invest and

do some venture capital and become a private sector COE specializing in a certain area, and you have the capability of doing that already, you decide you just need a little bit more seed money to put

into that, you can certainly do that.

If you are in the public sector, it is a challenge for many of these,

what might be very best practices in shared services, to come up

with whether or not they are ready; and, if they are ready, maybe

they just need some capital to help them get started to get on to

enrich some of their current systems.

Maybe they have to get some additional equipment in to be able

to provide the service that somebody might want from them.

Mr. PLATTS. How does an agency deal with that right now? I

mean, because we have all the different types of financial arrangements out there. Yet they are all under the same requirement. On

the IT side, you must do this; one or the other, you know, your own

center or migrate; and then, even beyond that, for the broader picture you’re going to have to make a factual determination of whether you can keep it or migrate.

So when do you expect to resolve this issue? Because I would

think for a department agency this is a huge issue for them, to

know up front what our expectations and abilities are. Because if

there is going to be a new source of funds that OMB is going to

ask from Congress for this purpose and that we need to spend

some more money so that we can create these centers and here is

how much it is going to cost, that is a different scenario than if you

are going to do it with what you have.

Dr. COMBS. Right. And that has not been our model thus far. For

example, the Department of Transportation has a franchise fund.

They are able to keep about 4 percent, I believe, of that in order

to upgrade their equipment and do various things. And for the

most part, that is probably a pretty good model right now.

But when I said a moment ago that we were looking at what the

other alternatives and other models are, we are not ready to speak

yet to those other models.

Mr. PLATTS. When do you think a final determination is going to

be made that the departments and agencies know that we are

going to advocate for you to become a franchise agency with the 4

percent, you know, fee collection or retention.

Again, it seems like that is an issue that needs to be addressed

up front for the departments and agencies.

Dr. COMBS. Well, one of the things that we have done thus far

is the—it is my understanding when these were established—is

that the agencies that were chosen to be a COE were worked withVerDate 11-MAY-2000 13:17 Sep 05, 2006 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 D:\DOCS\29332.TXT HGOVREF1 PsN: HGOVREF1
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in their own—their own legislation. They had their own legislation.

And we just worked with that.

I have not yet seen the need to come forward with something additional for that.

Ms. EVANS. I would like to add—and this is one of the alternatives that Dr. Combs is talking about—is that through the E-Gov

Act we authorized an E-Gov fund. And one of the purposes of the

E-Gov fund is to be able to do some—have some of the flexibilities

and things we are talking about. The administration has gone forward, and we have asked, and it is included in the President’s

budget. But as we go forward and we determine exactly what needs

to be done, such as capital improvements and those things for

COEs, that is a flexibility that Congress has already given us

through the E-Gov Act. So that is there.

And we have to look through on a case-by-case basis. And Dr.

Combs is right: Given the current appropriations of the COEs that

we said had capabilities now, it was—the plan was to work within

their current appropriations and then request any modifications

that we may need going forward, working with the agencies and

working with the Hill.

Mr. PLATTS. That approach now, though, will create an inequity

as far as agencies, departments, which are more likely to be able

to be their own—versus those that have to migrate—doesn’t it, because their source of funds vary in what they have in-house?

And that is kind of what I was after is how do you deal with the

inequity between departments and agencies; what their vision is

hey, we would like to be a COE, but we don’t have the same funding source that they have. How do you deal with that? Or are you

just thinking you don’t; you deal with what you have, and if you

can’t do it, then you have to migrate?

Dr. COMBS. We are looking at the current authorities that are

available to each one of the areas or agencies that would consider

those—that as an option.

And I would say to the extent that we find any competitive disadvantage, as you just talked about, we would want to work with

those potential COEs or those COEs, if we find they are already

there, to identify what potential options are out there for them.

And we would certainly need to work with you in order to talk

through that, before we do that.

Mr. PLATTS. I guess that falls into that category of part of our

hearing today is just trying, with you, to work through the kind of

the gray area out there of how this is going to play out, so that,

you know, you’re able to give this clear delineation to departments

and agencies, and our responsibilities of overseeing those same

agencies; we know what is a fair expectation of them within these

new efforts and this initiative.

Let me touch on a couple of other quick questions, and then we

need to move to our second panel. One of the challenges of the Federal Government has been getting full cost accounting and true

cost of what we do. And we have not been very successful, I guess,

I would say across the Federal Government.

How can we in making the assessment that is part of the decisionmaking process, of moving, you know, migrating somewhere

else, doing it in-house, or we don’t have to become a COE or miVerDate 11-MAY-2000 13:17 Sep 05, 2006 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 D:\DOCS\29332.TXT HGOVREF1 PsN: HGOVREF1
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grate, what we are already doing is the right thing, without full

cost accounting being well embraced—maybe is the right term I am

looking for—by the Federal Government, how do we make that factual determination today?

Dr. COMBS. Well, obviously, I share your concern that we need

full cost accounting and we are continuing, as you know, to work

toward that.

But there are other ways that agencies today are capturing cost.

And every year they have to submit their annual cost information

through their exhibit 52s as part of circular A–11 to Karen’s office.

And I think through the performance measurement work stream

that we have, as part of our financial management line of business,

we are continuing to figure out different ways that will help agencies to identify these costs and quality, as well as the timeliness

and metrics, and I think that agencies have the potential to look

at other pricing proposals of potential providers. They don’t have

to just depend on the cost information that they have within their

own disposal.

Mr. PLATTS. The more we get to that shared goal of full cost accounting, the more accurate any of these types of assessments are

going to be, so the more emphasis we put there, again, will help

us in coming back to that foundation approach, to have the best out

of possible to make an assessment on this issue.

In your written testimony, the Financial Services Integration Office did a cost analysis of what is expected here. Is that something

we could have shared with us?

Dr. COMBS. Certainly. We are happy to share that original

FMLOB business case with you.

Mr. PLATTS. Great. Appreciate your doing that.

Let me maybe just conclude with one final question. And the

original intent of the CFO Act was really to take financial management kind of out of that, ‘‘back room,’’ and we’re talking about the

back room services here, and really put it in the front room; in fact,

put it right where the secretary for that day-to-day strategic planning decisionmaking—you name it.

Is there some concern or something you have thought of that you

are, in moving it out in essence, offsite, that you are moving financial management to the CEO over here, not internal; that you are

diminishing that level of importance that Congress intended with

the CFO Account Act?

Dr. COMBS. No, sir. In fact, I would say that the more we can

take the CFO and continue to keep the CFO in the boardroom, the

better. And the way we do that is to solidify their seat at the table,

the CFO’s seat at the table, by adding value to what they do.

And the more that they have an opportunity to give better data

to their colleagues who are around the table with them, and to do

better analysis for their colleagues around the table, and for the

secretary and deputy secretaries in these departments, the better

they are going to be at the seat at the table in the boardroom, not

in the back room.

So the more they can do shared services, which they obviously

still—they have to spend a lot of time right now when they are inhouse when they are doing heroic efforts to get the clean audit and

to take care of some of those daily functions that add value right

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now—the more we can take that and move it to something that is

truly excellent in financial management, the better the CFOs are

going to be, because they are going to have more time to do the

analysis and more time to do a normal CFO function.

Mr. PLATTS. I share the assessment if the premise is that CFOs

are getting that reliable good information in a timely basis. My reason for the question is when we had Gwen Sykes with NASA here

a year and a half or so ago, and we talked about her oversight of

the 10 centers, and the fact that CFOs in those 10 centers didn’t

answer to her, but she was responsible for giving, you know, the

NASA, the administrator, the reliable information, being responsible to make these, but she had no control over those center CFOs,

they didn’t answer to her. Her ability to tell them, ‘‘I need it today,

I need this,’’ is a lot different than today, where they have restructured appropriately so she has more direct control.

So my worry is if it is over here, that COE is contractually responsive to that CFO in the customer agency or department, but

as far as direct hiring, firing, disciplining of whatever may be, that

CFO doesn’t have that direct control over the personnel that he is

relying on the information from.

And so if they do the job well, it is accurate, it is excellent information, but he gives up some of his authority or control over the

people he is relying on providing the information. And that seems

to be going more toward what NASA used to be than what we have

tried to make NASA become. That is the reason for the question.

Dr. COMBS. Well, thank you for the question. If I thought that

were the case, I would definitely not be an advocate for it. But I

don’t think that is the case.

In fact, I think that it will give the CFO even greater control because they, like today, they’re responsible for the information, period. And if we do the contractual agreements correctly, and the

CFOs truly know what they are getting, they will actually do better.

Mr. PLATTS. I think the key there is the terms of those contractual agreements with the host COE, whether it be a public or private, maybe even especially if it is a private, of how responsive

they need to be to that CFO, and to those terms.

One final area that I meant to ask about when we were talking

earlier about the FFMIA compliance in general is, Ms. Evans, I

think you referenced your due diligence review to become a COE

and that review process.

It is my understanding of the due diligence review, GSA would

not have met that in the past with an audit; 2005 audit not being

a clean audit, and 2004 being rescinded, a qualified audit being rescinded. If that was the case when they first were certified, they

wouldn’t have passed the due diligence review.

So what is their status today? Are they still deemed a COE, despite the 2005 audit findings and the rescission of the qualified

2004?

Ms. EVANS. And I would defer this particular question to Dr.

Combs because——

Dr. COMBS. The answer is yes. GSA will continue to be recognized as a CFO.

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We expect as potential customers want to go to GSA, that they

would closely evaluate whether or not they are losing their clean

audit opinion, would affect them or would give them any additional

risk by going to GSA.

We believe that GSA’s reasons for losing their clean audit was

based on not anything related to their shared services arrangements with their customers, but other problems that are isolated

in other program areas.

And so we believe that agencies looking to migrate to a shared

service provider, they need to certainly understand whether their

findings could impact their own audit. But at this point, we don’t

believe that is the case.

Mr. PLATTS. So having a clean opinion is not a requirement to

become a COE?

Dr. COMBS. It was a requirement in the original.

Mr. PLATTS. So, from here on out, any agency that wants to be

a COE in the future does not have to have a clean opinion to become one?

Dr. COMBS. Yes. Yes. They do have to have a clean opinion.

Mr. PLATTS. I am not sure, then, how you retain your status as

COE if you no longer have clean opinions.

Dr. COMBS. The entity itself should have a clean opinion. For example, the Bureau of Public Debt does a great, great job, and everybody—I think some of your staff even visited with them. We are

proud of the job that they do.

They are part of the Department of the Treasury, which of course

does have a clean audit. They have a material weakness, for example, but it doesn’t relate to the Bureau of Public Debt, it relates to

another entity.

So, yes, departments that are considering a COE should look at

whether or not the entity, the COE, has a clean audit opinion.

If that entity does, then they need to take that into consideration. If it doesn’t, they need to take that into consideration.

If it is a case like GSA where they have lost their clean opinion,

we wouldn’t just take all those customers out of there because they

lost their clean opinion. That would not be a practical approach.

Mr. PLATTS. When would you take the customers? What has happened, or has to happen, for somebody to lose their COE status so

that their customers have to migrate somewhere else?

Dr. COMBS. The customers would need to come to us and say,

‘‘We are extremely unhappy,’’ to begin with.

Mr. PLATTS. So it is not a factual determination, you are no

longer a COE, so now you have to go somewhere else? Because it

seems that is what it is up front. Maybe the customer doesn’t get

to decide who is a COE, OMB does. But then whether they stay

with them as a COE is up to the customer. It seems like a different

standard.

Dr. COMBS. Well, the customers are going to look at that performance of that COE based on the services that they are getting.

And if they have sustained poor performance, I expect that in the

daily, monthly, weekly meetings that I have with the COE recipients, I would hear about that. And we would certainly need to address that.

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But the sustained poor performance is probably the key factor

that would cause customers to want to leave.

Ms. EVANS. And I would like to add, I want to go all the way

back. When we made the determination based on the due diligence

list, I want to stress again it is they appear to have the capability

to provide the service.

So everything that Dr. Combs is talking about now is their actual performance. And so every—all the decisions that the agencies

have to make, have to be based on risk and their ability to address

that risk, as Dr. Combs has laid out.

So even though you have the designation, that you appear to

have the capability to do it, that is why we are stressing and Dr.

Combs has talked specifically about the competition piece and

structuring what agencies need to have in order to meet the financial management improvements and get a good clean audit.

So we are relying on the agencies also, just like they would any

other procurement, to be looking at what are all the risk factors as

I am planning and going forward on this. And so that is—clearly,

as you have highlighted, that is a risk.

Mr. PLATTS. But their requirement is to migrate to a COE, that

they—I mean, that is the requirement that is going to be placed

on them. Mandatory at some part, and perhaps mandatory or at

least possible on other parts of the effort.

And so they don’t have a say in that determination. And once

they are there—so, if I am reading correctly, when they first go to

COE, you are going to say, this entity is certified, so if you go with

them you’re complying with this requirement that you are either

a COE or migrate to a COE, because they have been certified; this

providing agency has been certified. They do go there.

If that agency does things that takes them out of a COE status,

will they still have the choice to say, well, for us we think it is still

working for us, so we can stay here even though they are no longer

deemed a COE? That is a question I am not sure there is an answer to right now.

Dr. COMBS. I think you’re right. There is no answer to that right

now.

Mr. PLATTS. I think the department’s and agencies need to know

that answer before they are expected to migrate anywhere. Because

if I am a guy at agency A and I say, well, we don’t want to make

the investment to become a COE, and the Bureau of Public Debt

is doing a great job so we are going to them, but if next year they

are deemed to no longer be a COE, I need to know what my choices

are, what the consequences for me are in deciding to go there. You

know, am I going to have to spend money? Are they going to spend

money? Those are the things you need to know up front.

Ms. EVANS. We have this issue on all of the E-Government initiatives where we cross-service on all the E-Government initiatives. I

am going to tale it up a level, maybe a little higher than just financial management.

The issue that you’re outlining right now is a major risk area

that we have with all of the 25 initiatives in all the lines of business.

And so we have implementation plans that we work through

with each of the agencies, not just on this initiative but on all of

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them, because of what exactly you are saying. Like we have based

on like E-Travel, it is when we go and we do that competition and

we awarded who the travel providers are, the assumption is everybody is going to do their job. And the agencies had plans to migrate

to those travel services because of the policies we had in place.

That is a good initiative to share, where we have had a few of

the service providers did not do what they said that they were

going to do. So we had to specifically go back and work with those

agencies to work with what those migration plans are, what the effect of that is, how that addresses the governmentwide initiative

from a whole, how to mitigate that risk with that agency because

they are depending on those services. All of these agencies are depending on these cross-services across the board. So that—I don’t

disagree with you, that is a big risk on the cross-agency governmentwide initiatives.

Mr. PLATTS. I think whether it is travel, financial management,

whatever it would be, those answers should, as best possible, be

known up front. If the provider you go to fails, is no longer a COE,

here are the consequences, your options; and whether you have the

option of staying, you know, because they are serving you well, and

you can show that, or you don’t have the option, that goes to that

just knowledge based up front.

And the reason, you know, in the financial report for GSA, why

I asked is, the November 12 Report of Independent Auditors on Internal Control noticed significant weaknesses in GSA’s financial

management system surrounding processes and controls relating to

budgetary resources arising from the primary GSA service of customer agency order processing. Further down it says, weaknesses

cited in the past included that GSA’s financial management systems and feeder systems were not configured to support budgetary

financial reporting.

That sounds like my read on that, and as a layperson I qualify,

that there is financial management problems at GSA that I would

think relate to whether they are a center of excellence for financial

management as a financial management line of business.

So, and the fact that they no longer have a clean opinion and the

2004 was rescinded, seems that this goes to financial management

at this financial management COE.

Dr. COMBS. I think your concern I share. But the other mitigating circumstance here revolves around the actions that we take at

OMB for any agency that has even any identified material weakness.

And one of the things we do is we immediately put them on a

corrective action path and a corrective action plan.

And that is where GSA is right now. And we are monitoring that

very, very closely.

And based on the corrective action plan, they are held accountable for making a lot of corrections and resolving the problems,

both through the President’s management agenda and through

other work that we have.

And as I said, if we have customers of theirs that do not believe

they are getting the kind of service they feel like they deserve and

the excellent service that they think they are paying for, then we

will definitely look at that. But thus far, that has not happened.

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Mr. PLATTS. As more and more agencies and departments migrate to COEs, this is going to be an issue that is going to be more

likely occurring. All the more why I think it is important to address now if an agency is a COE, everybody migrated to them,

their clean opinions are rescinded, in their area especially of financial management, so now they have a corrective action plan in

place. What does it mean long term, you know, if you are a customer agency, you have the right to go somewhere else that does

have that clean opinion, like the Bureau of Public Debt, and the

host COE has to pay for that.

Those are the type questions I think you really want to work out

up front, not to when you get—not just when you have a few COEs

but many, or many agencies going to those COEs.

Dr. COMBS. And I think that is excellent forward-looking, because right now, obviously, we don’t have that many different

choices. But we will eventually, both in the private and public sector.

Mr. PLATTS. And even if it is 10 instead of 4, or you are going

to have many more agencies migrating. And that is the real—

where that migrating agency has that answer, more importantly

than the actual COE has the answer. And that might be a good

place where we stop, because it really is the purpose of today’s

hearing and the ongoing dialog is thinking through all those scenarios of what is expected of these departments, agencies. What

happens if these scenarios play out from an oversight, you know,

what are we going to look to in providing our oversight, fulfilling

our responsibilities, the expectations of these agencies?

So I appreciate the exchange and very much the good-faith effort

of achieving this very worthy goal, which is that economy of scales.

Whether it is public, private, this is obviously something we want

to be pursuing and especially when it is taxpayer funds.

So we look forward to continuing to work with you, Dr. Combs

and Ms. Evans, with your efforts at the committee level, members

and staff; and ultimately, short term and long term, have success

in this important initiative.

Thank you for your testimony.

Dr. COMBS. Thank you. And we appreciate your help and the

help of your staff.

Thank you.

Mr. PLATTS. We will take maybe a 2-minute recess while we

reset the second panel, and hopefully we will not have that vote

board go off in the meantime.

[Recess.]

Mr. PLATTS. OK, we will reconvene the hearing and appreciate

our second panel’s patience as we proceeded with Dr. Combs and

Ms. Evans, and again are very grateful for your participation, your

written testimonies that you have provided, as well as your being

here for testimony today and Q and A.

First thing we will do is have you all stand and be sworn in and

then we will get into statements and questions.

OK, if you raise your right hands.

[Witnesses sworn.]

Mr. PLATTS. I think what we will do is just go down the line: Mr.

Kull, Mr. Marshall, Mr. Williams, and we have 5 minutes. I would

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like to say take more time if you need. My only worry is I think

getting to the questions will be helpful, and we have no idea when

the votes are coming. So we have been trying to get an answer, but

they have not been very forthcoming. But we will do the best we

can. But we wanted to also allow each of you to have that opportunity to capture the sentiments of your written statement.

So, Mr. Kull, if you would like to begin.

STATEMENTS OF JOSEPH KULL, PRICEWATERHOUSECOOPERS LLP; JOHN MARSHALL, VICE PRESIDENT,

CGI FEDERAL; AND CLIFTON A. WILLIAMS, PARTNER, GRANT

THORNTON LLP

STATEMENT OF JOSEPH KULL

Mr. KULL. Thank you, Mr. Chairman. I appreciate the opportunity to comment on OMB’s Financial Management Line of Business Initiative. I will summarize my written testimony and ask

that it be inserted in full into the record.

Currently I am a director in the Washington Federal Practice of

PriceWaterhouseCoopers. My comments are based on almost 32

years with the Federal Government, including 4 at OMB, 10 years

as a CFO, and over 20 years as a budget director. The views I express will be my own and not necessarily represent the views of

PWC.

The FMLOB Initiative proposes to improve the cost, quality, and

performance of financial systems by leveraging shared service solutions and other governmentwide reforms that enable efficiencies in

Federal financial management.

It is hard to argue with an idea that embraces those objectives,

and I believe it will and should happen. But it will take time, leadership and vision.

So the question is: How best to manage the process for success?

First let me comment on the current state of Federal financial

management, which I believe is good and getting better. Every year

agencies are improving the quality and timeliness of their information, providing managers with realtime data so they can run their

programs better. This is remarkable progress and the Federal financial management community should be proud of its contributions to achieve this level of performance.

Of course, there is still plenty of room for improvement. Agencies

need to resolve major issues so they can get and sustain unqualified or clean opinions. The key to that effort is the need to complete

efforts to improve their internal controls. This wider effort will

focus attention and resources, people and dollars, on building a

strong controlled environment. This should be the highest priority.

Our core systems are only as good as the data flowing into them

from the feeder and subsystems. Agencies need to be sure that the

feeder and subsystem business processes and controls are working

effectively before moving to a shared services environment. The private sector can play important roles in these efforts. Many firms

can provide the accounting, auditing, software, hardware, and consulting services that will be necessary to help agencies improve as

they move toward the new environment.

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Many firms also have knowledgeable staff and experience in

similar private sector efforts and can leverage that knowledge and

experience to ensure agencies benefit from best practices. There are

valuable lessons to be learned from these experiences, including developing appropriate performance metrics, drafting enforceable

service level agreements, transition migration issues, and strategies in developing backup and continuity of operation plans, just to

name just a few.

Moving to a shared service environment will also have audit implications for the agencies serviced as well as the service provider.

Under the revised A–123, agencies must obtain an understanding

of the controls of the service provider, as well as evidence that such

controls are operating effectively.

There will also be an increased need for cooperation and communication between the auditors, management, and the service providers to ensure that requests for information by the auditor are

met adequately and on time.

We should not assume that moving to a shared services environment will magically standardize business processes in core accounting systems. Transformation on this scale is difficult and tedious,

made more so by the fact we are dealing with the largest, most

complicated business enterprise in the world. It would be like trying to standardize information for the 24 largest corporations in

the country. The financial and performance data needed to run

Exxon or Wal-Mart will not be the same data necessary to run

Microsoft or Bank of America.

Even good proprietary accounting systems must deal with the

fact that the principal financial driver for most agencies is the

budget. For many agencies, compliance with budgetary accounting

requirements and appropriation law is a higher priority than

GAAP accounting.

In fact, my experience as a CFO was that most program people

were very happy to let me worry about the GAAP financials as long

as my systems gave them the reliable and timely budget information they needed to run their programs.

There is another way to use and reuse the disparate data without wholesale system changes, and that is with the standardsbased recording through XBRL, which stands for Extensible Business Reporting Language. XBRL is a standardized way to tag data,

similar to bar coding. It does not change the current USSGL and

Federal GAAP standards. It simply captures those standards in

electronic or digital format that applications and systems can process and understand.

That data element, wherever and whenever it is used, retains

that tag, allowing it to be permanently identified and remembered

by any application or system. It is a viable alternative that should

be looked at.

Finally, and perhaps most importantly, the financial management line of business represents a major change in the way many

agencies do business. Such change takes time, commitment and

leadership.

Many system projects fail or falter because we have inadequate

resources to train, educate, and communicate with our people

throughout the process. Whether creating new systems or improvVerDate 11-MAY-2000 13:17 Sep 05, 2006 Jkt 000000 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 D:\DOCS\29332.TXT HGOVREF1 PsN: HGOVREF1
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ing old ones, people issues are often far more difficult to overcome

than the technological ones. In the end, people can make a bad system work and a good system fail.

Leadership and commitment are absolutely critical for success.

In 1990, the National Science Foundation set a goal of being entirely paperless in 5 years. This was visionary as well as ambitious,

considering the Internet didn’t even exist at the time. Each NSF

director—and there were about four of them in the nineties—subscribed to this vision and kept it as a priority. The target date kept

moving, largely due to technology changes and resource constraints, but NSF management remained flexible and focused.

Today, NSF is virtually paperless.

Vision, leadership, and commitment made this effort successful.

Decisions about business process, reporting programs, and technology were made in the context of working in a paperless environment. Equally important was remaining able to adapt to changes.

It was by no means a perfect process, but it was more successful

than most ventures like it.

Shared services, centers of excellence, and standardization are

good ideas that can work with adequate time, leadership, sustained

commitment and excellent people. The government has an abundance of all four if it chooses to use them. Thank you Mr. Chairman.

Mr. PLATTS. Thank you, Mr. Kull.

[The prepared statement of Mr. Kull follows:]

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Mr. PLATTS. Mr. Marshall.

STATEMENT OF JOHN MARSHALL

Mr. MARSHALL. Thank you, Mr. Chairman, CGI Federal sincerely

appreciates the opportunity to appear today. You have asked for

our views on the current state of financial management, the Federal Government, and the Line of Business Initiatives.

My written testimony has been submitted for the record and I

will quickly summarize it here.

CGI is vitally interested in these matters. They are central to our

business. We have spent 30 years implementing Federal financial

systems in more than 500 of the largest, most complex organizations in the world. This includes more than 20 years’ experience

building, implementing, and maintaining Federal financial management systems and 34 years in delivering managed IT services

to industry and government.

CGI now offers these services through our CGI Center of Excellence. We are currently migrating the General Services Administration and the Corporation for National and Community Service to

our Center of Excellence, with other Federal customers to follow.

We also partner with GSA and the National Business Center of

the Department of the Interior to deliver services through their

Federal COEs. Based on our experience, we have four central observations for this hearing.

First, we support the line of business and center-of-excellence

concept. The FMLOB and COEs, if structured properly, hold promise for achieving the next stage of evolution and improvement in

financial management.

The government has evolved from establishing financial systems

to certifying and implementing modern systems to achieve unqualified audit opinions.

A few agencies have tied financial and program information together for strategic decisionmaking. These successes deserve recognition, but there is still very much left to do.

In many agencies, back office administrative functions are

underresourced and lack the capabilities they need to meet rising

expectations for financial performance and accountability.

The LOB Initiative can eliminate wasteful duplication, establish

world-class centers of excellence, and even enhance the Federal financial management work force.

As low-value operational workload is shifted to a COE, agency

resources and jobs can be concentrated on the remaining highervalue analytical functions of financial management that directly

contribute to mission performance. This opportunity is a win-win

for the Federal work force and the taxpayer. Leveraging government investments to achieve these outcomes makes good business

sense. But the current operational model must change to support

this evolution, and that change is very challenging.

To better understand the challenges to LOB success, CGI recently hosted a series of forums for Federal technology and financial executives. Two of these forums benefited from the personal

participation of OMB Comptroller Dr. Linda Combs. And we thank

her for bringing her important insights and leadership to these discussions.

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Listening to Federal CFOs and CIOs in these forums, we have

identified four policy and execution recommendations.

No. 1, OMB should extend its FMLOB vision to a blueprint for

the end state from an agency’s perspective. This would help agencies visualize how they can apply FMLOB services in their mission

context. CGI has developed a potential vision for this end state and

welcomes the opportunity to share it and discuss it with Congress,

OMB, and FSIO.

Second, there is an immediate need to establish a level competitive playing field for centers of excellence.

As you have discussed with the earlier panel, public COEs are

not operating under the same rules. Legal constraints prevent

them from taking basic business actions, such as creating financial

reserves to refresh their technology, conduct marketing and make

other improvements to their services.

Third, the competitive playing field is not level for public COEs

and private sector COEs. As one example, private COEs must account for all their costs in a bid to protect against liabilities that

affect shareholders. It is unclear whether or not public COEs fully

account for all their costs, such as items in direct departmental

overhead appropriations, in their bids.

Fourth, increased process and data standardization is required.

CFOs and CIOs cited standardization as critical to reducing the

complexity and cost of integrating feeder systems with their financial systems. We don’t recommend a drawn-out standards creation

process, but useful standardization can be done and approached

iteratively.

In the 1990’s, CGI and other industry representatives sat down

with Federal experts to develop the JFMIP financial certification

program. That effort has evolved to set the bar for software quality

that enables Federal financial management compliance.

We believe a similar degree of formal collaboration between industry and Federal policymakers can help address LOB process

and data standardization issues.

Our second overall observation is that success of the LOB initiative ultimately depends on agency-level leadership and execution.

In terms of agency readiness for using COEs, the biggest implementation challenge is managing the required change in mind set,

culture, and day-to-day operations.

Agencies will have to transform from how they manage operations today to how they would manage in a whole new and different environment, with a partnership with a shared service provider, a COE. They will have to shift their orientation from buying

software to buying a fully provisioned financial management service.

In this new business model, agencies must view COEs as extensions of their operations and their enterprise architecture, bound

and managed by an SLA.

By managing a COE-shared service as an extension of other architectures, agencies mitigate the audit implications of migrating to

a COE. The CFO Council’s implementation guide accounts for necessary procedures to ensure proper internal controls and reduce

audit exposure of using a shared service provider. If these procedures are combined with a strong governance model, agencies using

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COEs can retain control and maintain full compliance with Federal

audit requirements.

In addition, as you discussed, Congress might consider facilitating change by establishing new funding models for public COEs.

In terms of agency readiness to become COEs, the quality bar

should be set very high.

We see five core critical competencies that COEs must possess.

The first is competency in large-scale business and IT transformation backed up by many years of experience and successful

engagements.

The second, COE professionals must be experts at linking financial management with technology and able to configure daily financial operations to enforce strong internal controls, integrate external systems and roll up data for reporting.

Third, COEs should offer tested best practices that are continuously improved to leverage proven standard business processes and

technology.

These should extend beyond IT and application hosting to include turnkey business process services offering efficiencies and

process improvements.

Fourth, COEs must be competent IT managers with proven track

records in applying technology across a wide range of Federal programs and organizations.

Fifth and last, they should offer a framework for delivering

standardized services in a manner that acknowledges inherent differences in agency missions and embraces agencies’ variety by offering flexible service options and configurations.

Our third overall observation is the private sector has the capabilities to deliver on these promising concepts.

IT firms like ours have invested substantially in the expertise,

standard processes, and proven technologies to support for formal

back office functions like financial management. The government

can leverage the private sector to deliver its back office efficiently,

under enforceable service level agreements, so that Federal agencies can focus on their core missions. The key challenge is demonstrating agency value while managing cultural change. It works

in the commercial sector, and it holds great promise for the Federal

Government, if committed leadership, discipline and thoughtful

execution are present.

Our fourth and final overall observation is that the private sector

should actively engage in resolving these challenges to realize the

full potential of the FMLOB and COEs.

The Federal financial management community is blessed with

extensive expertise and robust participation from the private sector. The industry stands ready to help evaluate improvement opportunities and to develop creative solutions. Government can benefit greatly by establishing a formal mechanism for incorporating

industry as an active advisory participant in LOB policy development.

The President’s management agenda emphasizes that government should focus on its core competencies and leverage private

sector strengths to provide services outside its core competencies.

The FMLOB and COE concepts, if structured appropriately, can do

this. COEs are an opportunity for government to purchase services,

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driven by expected financial management outcomes, from service

providers that can be held accountable for quality service delivery.

COEs with large-scale IT, business transformation and financial

management expertise can reduce government cost and risk. However, without the active support of top-level agency leadership and

diligent execution fundamentals of managing tranformational

change at the agency level, the FMLOB will fall short of its promise.

We support OMB and the committee in your work and would like

to offer more input through a formal mechanism for industry participation in the ongoing LOB effort. We can help bridge our agency

customer perspectives with governmentwide policy perspectives to

make the next stage of financial management evolution a success.

Thanks again for the opportunity to testify today.

CGI holds the work of the subcommittee, OMB, and the FMLOB

Initiative in the highest regard. We share your deep commitment

to improving Federal financial management and ensuring the confidence that true accountability brings to American citizens. It is

a privilege to work with you toward these ends.

Mr. PLATTS. Thank you, Mr. Marshall.

[The prepared statement of Mr. Marshall follows:]

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Mr. PLATTS. Mr. Williams.

STATEMENT OF CLIFTON A. WILLIAMS

Mr. WILLIAMS. Chairman Platts, thank you for the opportunity

to testify about OMB’s Financial Management Line of Business Initiative. My testimony source includes interviews with Federal

CFOs and other financial managers done as part of an annual CFO

survey conducted by Grant Thornton LLP on behalf of the Association of Government Accountants.

The AGA is an organization of accountability professionals dedicated to the enhancement of public financial management. Among

other education-related activities, AGA sponsors professional development for government financial management personnel, and administers the certified Government Financial Manager [CGFM]

program.

Grant Thornton is an accounting and business advisory services

firm headquartered in Chicago, IL. Our global public sector practice is based in Alexandria, VA and provides financial, performance

management, and systems solutions to governments and other

international organizations.

The 2006 CFO survey includes questions about the Financial

Management Line of Business [FMLOB]. This year’s survey is still

in progress, with the completed results due in June. Today, I report

on 40 interviews completed by early March of this year. We guaranteed anonymity to our survey participants, which encourages

their candor.

I can summarize the findings of the survey related to FMLOB in

one sentence: Most Federal financial managers that we interviewed

favor the concept of the FMLOB. But they are concerned about how

the initiative will be executed. For example, survey participants

pointed out that the OMB Financial Management Line of Business

and Centers of Excellence concepts are not new. Center of Excellence refers to shared service providers for the Federal Government. One example would be the Department of Agriculture’s National Finance Center’s work related to payroll processing for other

agencies. The NFC has been a successful shared-services organization for over 23 years.

Indeed, the FMLOB Center of Excellence is part of a broader,

older trend of transferring routine infrastructure and administrative activities to a shared-services provider.

Almost no survey respondent opposed the concept of shared services, just as long as the service quality is good and it’s reasonably

priced. Perhaps the only difficulty respondents had in understanding the Centers of Excellence concept was the scope and range of

services to be provided by the centers. Some respondents want

more time to consider the option of becoming a Center of Excellence or transferring financial activities to a center. They say they

have not had enough time to study the pros and cons in general

and their internal investment equation. In addition, they want

more guidance from OMB, such as better definitions and the services to be provided. Respondents were aware that OMB intends to

provide additional guidance in the near term. Some interviewees

thought pressure brought by the initiative is good because it accelerates positive trends. These include consolidating information sysVerDate 11-MAY-2000 13:17 Sep 05, 2006 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6633 D:\DOCS\29332.TXT HGOVREF1 PsN: HGOVREF1
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tems, reducing cost, increasing standardization and benchmarking

their systems and operations. All want a fair and honest comparison done before agreeing to a Center of Excellence arrangement.

The respondents identified specific issues that must be addressed

for the concept to proceed; capital funding; lack of true competition

between public entities versus private sector versus public-private

consortia; the ability to fairly assess the bids and proposals from

the just mentioned types of competitions; developing service quality

measures and performance standards; and establishing governance

structures for the relationship between the parties involved. The

structures need to give customers a voice in a provider’s operations.

And, last, where will the money come from for transitioning services and data?

There should be no negative audit implications for a Federal

agency that transitions to a shared-services provider. This means

that a Center of Excellence provider should comply with regulations for information systems and internal controls so that their

customer agencies can rely on their controls for their own financial

statement audit purposes. However, several respondents said that

Centers of Excellence are not yet in compliance with these rules

nor will they in the near term.

You asked about the private sector’s role in shared services.

Many respondents said that the private sector will continue to supply much of the support and information technology solutions used

in public sector shared services. Private companies are better able

than Federal entities to obtain funds for capital investments in

new technology. Also, the private sector has more experience in

managing technologies and processes of shared services. Most survey respondents who answered this question also said that they

prefer public-private joint partnering over private-sector-only or

public-sector-only Centers of Excellence.

To conclude, financial leaders in our survey like the idea of the

FMLOB initiative but are concerned with its implementation.

Sound execution will depend on the following factors: The ability

to develop standard financial management process throughout government; sound governance structures and agreements between

shared-services providers and their customers; effective change

management, to ease the transition to a new way of doing some financial management operations; excellent performance management, including service level agreements and performance measures; good management of customer relations and the technology

and processes involved.

Thank you for the opportunity to testify. I would appreciate your

inserting my statement in the record. I will be glad to answer questions.

[The prepared statement of Mr. Williams follows:]

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Mr. PLATTS. Thank you for your testimony, and the information

is included in the record. In your written testimony and all three

of your testimony here today is the general appreciation for the

benefits of this type of initiative but a clear focus on a lot of the

unanswered questions. That, as you heard, was a big part of our

discussion with Dr. Combs and Ms. Evans.

One of the questions I asked, which the answer was clearly not

definitive, that there is no timeframe. That seems contrary to the

message of the President’s budget. And then in Dr. Combs’ December memo that 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. Those statements now, I

mean, not over the next 10 years, they didn’t share a timeframe

of when they think this has to happen, but based on those statements and the feedback we get from within the departments and

agencies, there is a belief out there that it is really now that they

need to be working toward being a COE or looking to migrate.

Is that read an accurate one in your interactions with CFOs,

CIOs throughout the Federal Government? Maybe specifically with

your survey results, is that this is something they are expected to

be doing now?

Mr. WILLIAMS. Sir, I would tell you that almost every respondent

in our survey would tell you that they know they need to be positioning for the Center of Excellence initiative. They absolutely feel

that way.

Mr. PLATTS. Any contrary belief?

Mr. KULL. I think part of the issue is that there is no end game

to look at here in terms of where am I going to be in 2010, 2012.

And if people were to have a focus on a particular place or level

of performance, I think they would be able to manage toward that

in a more coherent way. Instead of looking at it step by step, looking at the vision and working backward.

Mr. PLATTS. Mr. Marshall, in your written testimony, you kind

of capture where OMB has laid out a high level mission or view,

but to that frontline financial manager, what does it mean to me

today to get to that high level view?

Mr. KULL. It gets to the cultural issue, if people understand

what’s driving the behavior and the organization because they all

see the same place they have to be, then there is more of an understanding of how to get along, how to work with the rest of the team

in order to get there.

Mr. MARSHALL. We’ve had discussions with Dr. Combs and her

staff about what is the mission, what is the end game, and we’ve

had our own takes on what that ought to be. I think what Dr.

Combs said today is starting to spell it out a little more clearly

than it has been before, but we think there still is an opportunity

to really present a bold vision of a business architecture that enables agencies to focus their resources on strategic decisionmaking

and core mission delivery. Then LOBs like finance and the others

that have been cued up can be managed in a consolidated shared

service environment that is driven by the Federal enterprise architecture. There’s a lot of good work that’s going on, and it really

gives those agencies that ability to focus on the mission and do

what’s critical.

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Mr. PLATTS. As they try to get to that point where they can focus

on their critical mission and allow others’ expertise to help them

in day-to-day management, one of the items touched on, Mr. Kull,

in your testimony about the governmentwide standardization and

specifically about standards-based reporting as another option, and

in your testimony, you say in moving forward that one of the

things that should be looked at is this data standardization to

allow the applications to come together.

Is that something that you think, in your opinion, OMB is looking at as an alternative at least in the short term? Is that what’s

going to the governmentwide accounting code, along those lines? Do

you see something different?

Mr. KULL. I think they’re fairly consistent. We’ve been talking to

OMB, as I’m sure other people have, about the potential for XBRL.

It’s becoming more and more recognized as a possibility for using

information; by tagging it once and using it over and over again,

it’s permanently tagged, permanently recognized. Works like bar

coding. It forces the discipline that’s been lacking over the many

years of getting standards in place and then using them. It takes

those standards and makes them digital so that if everyone is able

to employ that, then you can have data that’s coming from different

systems but that can be read by virtually any system.

So I think it’s something that should be looked at, and I think

they are looking at it. I think, like most people, it’s a new idea and

so getting a new idea out there and testing it is very risky and

sometimes people are hesitant to step forward.

Mr. PLATTS. On the specific issue of governmentwide accounting

code, and Dr. Combs talked about the September 30th deadline

that they’ve set out there as they see more as internal—what’s

your read on the feasibility on what can we have in 6 months?

Mr. KULL. It was interesting because I think today she mentioned something about that they would have a plan in place. We

do a lot of planning in the government. Having worked there 32

years, I’d rather see a phase where perhaps certain functions or activities are targeted for coding generation, if that’s what it is, and

we start actually doing it to see in fact if it can work, if we can

get people to the table to agree on these standards.

If we pick certain areas and we start to build on a success and

a framework, we may be actually able to move this along.

Mr. PLATTS. My read was the same, that it wasn’t actually

having——

Mr. KULL. There was no end date in terms of when we would actually have a code.

Mr. PLATTS. That we’ll have a plan how to move forward in

achieving a code.

Mr. KULL. I’m sure we will have a plan by September 30th, if

that’s the case. But there are other things I think could be looked

at in the interim.

Mr. PLATTS. We touched in the first panel also on the lack of

FFMIA compliance, that cart before the horse, that if we are doing

better there, that will make everything else a lot easier.

I guess one, in a general sense, to all three of you, your read on

that focus, that it’s great to pursue this new initiative and ultimately it can be a real benefit, but do we need to do a better job

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on FFMIA compliance that will help us get to that alternate goal,

and then specifically from an audit standpoint, if you migrate to a

COE, your opinions on how you’re going to be treated in your audit

if your COE that you migrate to is not FFMIA compliant, how does

that impact the customer agency’s audit?

Mr. WILLIAMS. I would say in every interview we’ve had, each of

the other COEs or those that might migrate to one expressed concern about not having a SAS 70 done and what the implication

would be on their financial statement audit. Agencies are concerned, trying to figure out what that means downstream. My personal opinion is it would be hard for an agency to get a clean opinion if the Center of Excellence it uses had a qualified opinion.

Mr. KULL. I think there is a difference, too, between an audit

opinion and an opinion on a control environment at a particular

service provider. We have situations now where we have service

providers not compliant and yet they are able to somehow provide

enough evidence about controls that allows people to use their systems and get clean opinions on their financial statements.

Mr. MARSHALL. I think Dr. Combs’ answer to that question was

right on in that if your COE is part of a larger organization that

has some issues, it doesn’t necessarily mean the COE—that it

would apply to the COE. It wouldn’t necessarily get in its way of

delivering good audit results to its customers. We see no incompatibility at all between the objectives of FFMIA and the line of business if they’re managed appropriately.

Mr. KULL. This could also be, if you’re looking at standards for

COE, if one were to establish principles or terms and conditions

around which they’re built, this may be something that allows that.

Mr. PLATTS. That was going to be my followup; should a standard be that you need to be FFMIA compliant to be a Center of Excellence?

Mr. WILLIAMS. The survey would say yes. All the respondents of

the survey feel that way very much.

Mr. MARSHALL. I think we would agree, but we might differ if

the issue is not within the management purview of the COE, that

might be a different story.

Mr. PLATTS. In assessing whether an agency is FFMIA compliant, would you give more weight to the outside auditors’ opinion on

that compliance or the agency head’s opinion?

Mr. KULL. I’m going to express my personal opinions for sure.

FFMIA is very clear that the determination rests in the agency

head’s hands. When I was at OMB, we had a number of agencies

in that situation where the IG audit opinion on compliance was

noncompliant, whereas the agency head believed that they were

compliant. In every case, the agency presented us with facts as to

why they believed they were compliant and in every case that I’m

aware of, OMB accepted that as a compliance situation. And in the

end, the evidence for me would be, is this agency head willing to

sign a statement that they believe this information to be true, that

they use this information to make decisions, and that they support

the people who generate it, in a sense their own staff, absent anything contrary to that.

Mr. MARSHALL. I have seen similar issues from the agency side,

and I would have to agree with Mr. Kull, that first an agency head

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would have to be very, very careful before he signs his name to

something that counters an IG or an auditor’s report. But sometimes the issues are very close judgment calls, and honest differences of opinion can exist. And I would think that wouldn’t happen very often that an agency head would make that decision, but

if and when it does happen, I think it would be very well considered and again consistent with the law to give them that flexibility.

Mr. PLATTS. Seems that if you have that evidence that suggests

that you are compliant, that you would make sure that’s presented

as part of the audit, because if the agency head makes the determination and then OMB accepts it, that’s still in-house, meaning

it’s still within the Federal Government and within the administration. That, I think, is in Section 803 of FFMIA’s reason to have the

auditor give that opinion, is to get that independent. And a concern

that we have, a practice that allows that to happen, but how it’s

reviewed or weighted, I guess.

Mr. Marshall, you talked about your looking at being a Center

of Excellence, and GSA, and there is one other.

Mr. MARSHALL. National Business Center at Interior.

Mr. PLATTS. Where do you stand in that effort? And one who’s

looking at doing this, what’s your comfort level and the guidance

you have been given for this process and how it would be structured and what your perhaps liability would be if you don’t match

up and fulfill what your customers believe as far as paying for

them to migrate somewhere else?

Mr. MARSHALL. Our COE is up and running. We have customers

coming to us, and it is fully operational. We’re actively applying

our experience in managing agency transformation and financial

management systems. We’re delivering an accountable service. It’s

delivered under strong, rigorous, enforceable service level agreements, and there remain some gaps, we think, in how agencies acquire our services and how they compare private services versus

public COE services.

We understand that a public COE could be engaged through an

agency-to-agency memorandum of understanding without businesslike, enforceable service level agreements. So the level of accountability we see going to a private COE is much stronger and much

more empowering of the agency customer than might exist through

a public COE. And this is, again, one reason we advocate that government and industry to develop a sustainable framework so we

can move together into this new environment in a measured and

business-like way.

Mr. PLATTS. Two followups, one is, can you walk me through the

process of your being deemed a COE by OMB? And one of your customers is GSA, which is a COE. Are they in essence just a passthrough since they are also an identified COE?

Mr. MARSHALL. Let me explain. CGI services GSA in two ways.

First, a number of years ago, GSA selected our software Momentum to be its core financial system for the agency. They call it Pegasus; that’s what they christened their accounting system. Pegasus

now is in place as the financial system of record for both GSA’s

own agency operations and for the services that GSA provides to

other agencies as a COE.

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For the last several years, GSA has hosted Pegasus on a commercial platform operated by another company, and at the same

time, CGI has been providing systems integration and application

support for Pegasus. So they’ve had a public-private partnership involving two contractors as well as the government.

Recently, GSA decided to consolidate all of these services, including system integration, hosting and application support under a

single provider which is CGI. They think this will help give them

a better handle on their services, increase accountability, and improve performance to have everything related to Pegasus and its

COE handled by one contractor. So it’s a great example we think

of an effective public-private partnership being delivered now in

this COE context.

Bottom line relative to ourselves and CGI, we support GSA as a

software provider and as the host for their official system of record.

We provide the same services to GSA and to GSA’s customers

through the COE. It may be a little confusing for some, but those

insiders who know the market and the way it works seem to understand it pretty well.

Mr. PLATTS. And how are you deemed a COE?

Mr. MARSHALL. Our financial management software has been

certified by JFMIP, the predecessor to FSIO, and it’s now offered

on a hosted platform that’s CGI. We’ve had discussions with OMB,

told them where we are, and they have allowed us to all call ourselves a private COE.

But there’s no other certification requirement aside from those

associated with our software. Of course, we’re meeting all Federal

security in our platform, and in our entire infrastructure, we will

incorporate best practices and meet all appropriate Federal standards.

Mr. PLATTS. Seems less stringent or involved of a certification

process than what is talked about by Dr. Combs with the agencies

themselves, that to become a COE that they are going to have to

go through a more involved assessment and a lot of benchmarks

and reviews to establish, in other words, have a pretty heavy burden of proof to be able to do it themselves. Is that a misperception

on my part?

Mr. MARSHALL. I don’t think so. I think the due diligence checklist forms the structure of OMB’s evaluation framework for a public

COE, and we conform to all the elements in that checklist. We do

conform. It’s a certification process that we all participate in.

Mr. PLATTS. So they work with you in running through their due

diligence checklist, and you net all those before being certified.

Mr. MARSHALL. That’s right. Of course, our software, as I said,

has gone through the entire process itself.

Mr. PLATTS. Now as one who’s not an insider on these issues as

far as understanding them, a lay person, why would anyone contract with GSA as a COE versus just directly to you as a COE?

Mr. MARSHALL. Why would an agency go through another?

Mr. PLATTS. Rather than coming to you.

Mr. MARSHALL. It may be because the agency, the COE offers

value-added services in addition to the core hosting and the application support that we provide through them that provides to them

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ship between the government agency. Some agencies, as I think

Mr. Williams’ survey reflected, just have a comfort level doing business government to government with another private sector provider behind the scenes. I think it’s a matter of preference and culture.

Mr. PLATTS. One of my last questions to Dr. Combs, and it goes

to this issue, is I think there is a real benefit when we allow the

financial policymakers, CFOs and things to be able to focus on the

strategic decisions based on the good information, and if we are effective in getting to COEs, that can be an end result, positive, of

this effort.

But my question was that concern about getting removed from

having actual authority, if you’re the CFO, over who’s doing the information gathering and the assimilation and everything, and

seems like that would be even complicated further if I contract

with GSA as my COE, but they’re actually contracting with you.

So if there’s something that now it’s two levels away. Is that a legitimate concern or is it not as involved as it seems?

Mr. MARSHALL. That’s an issue in the minds of some customers

who would rather have the direct SLA relationship with the ultimate service provider rather than through another party. And so

you get, I think, throughout the market, different preferences, different cultures, different customers would prefer one approach to

the other. We are here to do business with the government, whether directly or indirectly, through a COE. We’ll respect their preferences.

Mr. PLATTS. Yes.

Mr. KULL. I’d like to make a comment about that. Part of the

thinking around the President’s management agenda back in 2001

when the financial management part of it was developed was to

move financial management in agencies from a processing environment to an analytical one. The thinking was that machines can do

the processing, and it’s getting more and more evident that they

can do probably a better and faster job with good controls. What

we needed to do was to change the way people handled their functions to be able to use that information analytically to find out how

to run the business and their programs better.

Mr. PLATTS. Right. Again, everybody focusing on their expertise.

If we have the pure hosting COE versus one that’s broader and

more of a full service relationship, I think in the survey results the

Association of Governments published an account, not the actual

survey, but that one of the COE’s for that paper said it does not

encourage the pure hosting relationships, that it’s better if you’re

going to be more comprehensive, full service. Opinion from the

three of you. Sounds like, Mr. Marshall, your COE at least for

some of your work is a pure hosting but not necessarily limited to

that.

Mr. MARSHALL. That’s very true. A number of our customers just

want the basic hosting, but we offer levels up. We have tiers that

we describe: The first tier being the hosting; the second tier running applications for them; and then third and fourth running up

to systems integration and process management and all the way to

full business process servicing. So we’re prepared to grow with the

market all the way as the government evolves in that direction. We

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think there is a better value proposition, that the more integration

you get, and with more specialization, the agency gets more ability

to offload work that it may not do as well as we do. Again, all those

benefits of specialization—focusing on what you do best, us in the

back office and the agency in the front office—keeps compounding

as you move up the four tiers.

Mr. WILLIAMS. I would say, based on the survey respondenses,

there is a great range of opinion as to what agencies want. Several

want just hosting only. We heard from an agency 2 days ago that

said they really would prefer to do accounts receivable themselves

because it’s so critical to their mission, but they’d like to see the

whole accounting operation function being provided by some type

of Center of Excellence. I think the key is one size does not fit all.

Mr. PLATTS. Mr. Kull.

Mr. KULL. I agree with the comments made by Mr. Marshall and

Mr. Williams. It’s neither good nor bad, it’s the comfort level of a

user. As a COE host, however, I would want to see more services

offered because it means you can distribute your overhead over

more activities, lower your cost and be more efficient. I could see

why you would want to get out of just strictly being in software

processing.

Mr. PLATTS. Interesting, because in my understanding, if I got it

right with the first panelists, is, there is a mandatory requirement

regarding in essence the hosting of the applications. Either you are

a COE or you go to one. We’re mandating that hosting aspect but

not the rest of it, so we are separating it; although it seems like

there is a benefit of having taken that more comprehensive look.

Mr. MARSHALL. As you move up those four tiers, you’re moving

up the value chain within the organization and driving more and

more value through that.

Mr. PLATTS. One of our concerns is, in getting a better understanding today, is that mandatory, just hosting and breaking that

out as opposed to waiting and making a more informed decision on

the whole package, it’s a good goal, but we get a better result if

it’s a more deliberate, comprehensive approach; that maybe we’re

jumping the gun on one aspect rather than waiting and being more

comprehensive. Let me check here.

Looks like we’re maybe about 5 to 10 minutes before the vote

board goes off.

What about the impact on the financial management work force

across the Federal Government with COEs? Maybe it’s too broad

a question because we don’t know how many will become COEs,

how many are going to migrate to COEs, public or private. But any

assessment, or did the survey——

Mr. WILLIAMS. The survey asked a bunch of those questions, and

we submitted the entire survey. We asked one about the top concerns, and virtually all the respondents put HR and the skill set

for financial management personnel in the top three concerns.

Many believe that COEs done right can actually augment the

shortage of quality people today. Many have some concerns about,

if they can’t get good people, how could a Center of Excellence get

good people? You hear it somewhat both sides of the conversation,

but most think it’s going to be of benefit to them.

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Mr. MARSHALL. We would agree with that. It’s definitely a net

positive. Many of these financial management staffs today are

under-resourced relative to their rising work loads. You have to remember, many were hit as all the administrative functions were

across the Government by the downsizing cuts in the 1990’s. The

process and streamlining improvements that were supposed to happen back then didn’t happen, so they’re stuck with platforms that

haven’t been modernized, and as you shift that to COEs, it will free

them up to do what they do best—policy, standards, and oversight—and let the COE’s do what they do best, executing those

back-office functions. So it is a win-win for the work force and taxpayer.

Mr. KULL. I think the issue of finding the people to do the analysis and not the processing is going to be the real challenge.

Mr. PLATTS. I’m going to squeeze a couple questions in. How

about thoughts on the level playing field between—within the government franchise funds versus the various forms where they’re

able to set those sums apart year to year? There are a lot of variables out there as far as an agency assessing what their ability is

versus a different one. Sounds like that they’re looking at that

issue with not a specific recommendation or approach right now.

Any thoughts?

Mr. KULL. I think that’s probably going to be one of the biggest

challenges of this whole effort, because we have the private sector

firms that have to deal with return on investments and equity and

those kinds of issues and very competitive pricing models, whereas

you mentioned earlier about the full cost disclosure, what do these

Federal COEs really cost? Are they recovering those costs? Where

do they get the seed money to invest in hardware or software?

Those are major issues, and there needs to be some coming to the

table in terms of what is the playing field so that we really understand what the competitive environment will look like.

Mr. MARSHALL. We agree with what Mr. Kull said, and I think

you have hit the public-versus-public issues pretty directly. We

need to get them on a comparable business model so they can compete fairly. Regarding public versus private, remember, agencies

serviced by commercial entities go through the Federal Acquisition

Regulations [FAR] process. It’s a whole lot different than going

through a memorandum of understanding without always a requirement to compete. So we’re at a bit of a disadvantage, and we

don’t think that the playing field is exactly level. We have to account for all of our costs in a bid. We don’t know that those are

necessarily fully disclosed in a public bid. If an agency accepts a

bid from both private and public entities and decides it wants to

go public, it can cancel the acquisition and make an award directly

through an MOU to a public COE, and we have no protest or appeal channel because the procurement has been canceled. Therefore, the FAR appeal rules don’t apply.

So we think we need to rethink these approaches to acquisitional

and level the playing field, and it’s a place where better dialog between industry and government should be used.

Mr. WILLIAMS. The survey results would support that. Every

agency would love to see more guidance on how to evaluate those

bids and proposals fairly for the good of the agencies.

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Mr. PLATTS. If you’re a public entity, such as the Bureau of Public Debt, and you’d have a major agency saying we want to migrate

to you, which would require a significant increase in manpower,

where do you get the funds for that since you have already got your

appropriation. Currently there’s no provision for hiring a huge new

work force. Those are some of those uncertainties out there that I

think we need to work through, and I think Dr. Combs and her

staff are seeking to do that, but I think there is a lot of uncertainty, a lot of those types of core questions of how you do it, not

is this a good initiative or worthy goal, but how to do it in a responsible way.

Two final ones, one is on the service level agreements issue and

OMB looking at the hosting, COE paying the cost of someone migrating to a new COE if things don’t work out as intended.

Thoughts on the appropriateness and how that especially relates if

it is a private COE.

Mr. MARSHALL. Speaking for a private COE, we’re very concerned with that idea. A point of agreement——

Mr. PLATTS. I’m not surprised.

Mr. MARSHALL. A point of agreement with people at OMB is that

we thought we were on the same page and that the SLAs should

be based on a commercial best practices model, as much as possible. This just isn’t the way business is done in the private sector.

If a customer agency isn’t happy with the services, it should have

plenty of control by including financial penalties defined in the

SLAs. SLAs are a great control mechanism to ensure corrections to

service and so forth, and it’s a whole lot better to manage the relationship in that kind of context than jumping into the divorce proceedings and asking, how do we split the blanket?

Mr. PLATTS. The cost of that transition to a new one, your starting over again. Actually, did either of you have comment on that

premise?

Mr. WILLIAMS. All I would say is respondents felt very comfortable there was a course of action if a private sector COE didn’t

do well. They felt very confused what the course of action would

be for a Federal or public entity.

Mr. PLATTS. Again, comes to an appropriations question of, all

right, you are not doing well, so you have to spend money to migrate me somewhere else; well, where does that money come to pay

for that migration in your appropriation that’s already set? I have

not seen any proposal or am aware of any that would set kind of

a sum aside for that contingency with OMB.

I think we covered most of the areas I wanted to touch on. I

think one is, I guess, I just want to emphasize again your insights

are very helpful, and my hope is, as we go through and seek clarification, that there will be continued and enhanced dialog between

your industry individually or collectively with OMB because you

bring a lot of great insights into how this is going to play out and

the likelihood of it succeeding, such as the issue of if you’re the

host agency and you have to pay for that new migration, how many

private sector COEs are actually going to want to participate,

which is certainly what the administration sees is an advantage

here of competition generating a good marketplace. But if that’s

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hanging out there, what competition outside of the government

itself are we going to have.

Your testimony is again very helpful and really kind of helped

to well frame my insights as we addressed Dr. Combs and Ms.

Evans, even with reading it at midnight or 1 am. It was well stated

so I could capture the essence of the concerns individually or of the

survey results. If you have any additional information, we’ll be

keeping the record open as we do for 2 weeks. But again, my sincere thanks for your testimony and your preparation and your patience here today with the previous panel. Thank you. We will keep

the record open for 2 weeks for any additional documents and including from Dr. Combs on some of those written questions that

we’ll be submitting.

This hearing stands adjourned.

[Whereupon, at 5:46 p.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Edolphus Towns and additional

information submitted for the hearing record follow:]

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Æ