Office of 

Inspector General 

Efficiencies Realized 

 Through Outsourcing 

A-07-01

 Veronica McCain 

 Auditor-in-Charge 

Veronica McCain 

A dit i Ch

 May 20, 2008 
Memorandum Farm Credit Administration 

1501 Farm Credit Drive 

McLean, Virginia 22102-5090

              

   

May 20, 2008 

The Honorable Nancy C. Pellett 

Chairman of the Board 

Farm Credit Administration 

1501 Farm Credit Drive 

McLean, Virginia 22102-5090 

Dear Chairman Pellett: 

The Office of the Inspector General completed an audit of Efficiencies Realized Through 

Outsourcing. The objective of this audit addressed whether the outsourcing of financial 

services to the Bureau of the Public Debt (BPD) improved Agency operations and reduced 

costs. 

We found that FCA’s decision to implement a shared financial services agreement with BPD 

has been positive in improving efficiencies and effectiveness in the Agency’s financial 

management services. We recommended the finance team periodically complete an in-depth 

analysis to make sure the Agency is continuing to receive the best value. 

We conducted the audit in accordance with Government Auditing Standards issued by the 

Comptroller General for audits of Federal organizations, program, activities, and functions. We 

conducted fieldwork from September 2007 through April 2008. We provided a discussion draft 

report to management on March 12, 2008, and conducted an exit conference regarding the 

discussion draft report with the Director of Office of Management Services (OMS) on March 27, 

2008. We then provided a final draft report to management on April 24, 2008. 

On May 13, 2008, the Director of OMS provided me with a memorandum stating that as a result 

of the final draft report the finance team conducted a comprehensive evaluation of the BPD 

agreement to include all areas recommended in the final draft report. In addition, the Director of 

OMS has required the finance team to evaluate FCA’s financial service agreement with BPD 

every three years or sooner. 
Page 2 

Attached to the OMS Director’s memorandum to me was the evaluation report regarding BPD’s 

performance he provided to you. The report included an assessment of BPD’s performance 

measures, efficiencies gained, cost trends, and benchmarking. The report concluded that BPD 

continues to be the best value for shared financial services. We have reviewed the evaluation 

report on BPD and find the information to be adequate to close out the recommendation. 

We commend the OMS on their quick action to resolve the recommendation. If you have any 

questions about this audit, I would be pleased to meet with you at your convenience. 

Respectfully, 

Carl A. Clinefelter 

Inspector General 
Table of Contents

BACKGROUND ....................................................................................................................... 1

OBJECTIVE AND SCOPE ...................................................................................................... 2

AUDIT RESULTS ..................................................................................................................... 2

Conclusions ....................................................................................................................... 2

The Outsourcing Decision ................................................................................................... 3

Efficiencies Gained ............................................................................................................. 4

Costs of Shared Financial Services ...................................................................................... 4

Monitoring BPD Performance .............................................................................................. 6

RECOMMENDATION RESOLUTION.....................................................................7

 
BACKGROUND 

The Finance Team (FT) within the Farm Credit Administration’s (FCA or Agency) Office 

of Management Services (OMS) provides financial services to FCA. For several years 

the Agency had an interagency agreement with a financial service provider for a financial 

management system. In 2003, the financial service provider notified FCA that the 

Agency must convert to an upgraded financial management system. Initially, FCA felt it 

was in its best interest to expend the additional resources necessary to upgrade its 

financial management system. However, due to considerable delays in FCA converting 

to an upgraded financial management system, in 2005 OMS decided to review the 

possibility of obtaining financial services elsewhere, notably, from a shared financial 

services provider. 

A shared financial services provider is an organization established to provide financial 

services to other entities. The Office of Management and Budget (OMB) has embraced 

the concept of shared financial services for Federal financial management and has 

designated several such providers as Financial Management Centers of Excellence 

(FMCE). OMB requires that Executive Branch agencies planning any major transition in 

their financial management systems consider using one of the FMCEs. Research has 

shown that the benefits of using a shared financial services provider include: overall cost 

reductions, easier implementation of follow-on system changes, more time for in-house 

financial staff to focus on analysis and support, and more time for agency managers to 

focus on core mission achievements. 

After analyzing the benefits of outsourcing for its financial services needs and evaluating 

proposals, the Agency entered into a reimbursable services agreement with the 

Department of the Treasury’s Bureau of the Public Debt (BPD), an FMCE, for shared 

financial services, wherein BPD would provide a full range of services including 

accounting and financial reporting, travel management, and procurement. Below is a 

chronology outlining the development of the BPD agreement. 

• November 2005 - The OMS Director issued a decision memo to the Chairman 

and Chief Executive Officer regarding the Agency’s entering into an agreement 

with BPD for financial services. 

• April 2006 - The Agency signed a six-month agreement with BPD to provide full 

service accounting and financial reporting, travel management, and procurement 

services. 

• September 2006 - The Agency signed an agreement for financial services with 

BPD for fiscal year (FY) 2007. 

FARM CREDIT ADMINISTRATION ♦ OFFICE OF INSPECTOR GENERAL 1 
• March 2007- Agency management decided to bring procurement services back 

in-house because it was felt for this particular financial service greater 

efficiencies and effectiveness could be achieved. 

• August 2007- The Agency signed an agreement with BPD for FY 2008. 

OBJECTIVE AND SCOPE 

The objective of this audit was to determine whether outsourcing financial services to 

BPD improved Agency operations and reduced overall financial management costs. 

Specifically, we evaluated the following: 

• support for the outsourcing decision, 

• efficiencies realized through outsourcing, 

• cost of outsourcing, and 

• monitoring of BPD performance. 

The audit was performed at FCA headquarters in McLean, Virginia, from September 

2007 through April 2008, in accordance with generally accepted auditing standards for 

Federal audits. 

AUDIT RESULTS 

Conclusions 

We found that FCA’s decision to implement a shared financial services agreement with 

BPD has been positive in improving efficiencies and effectiveness in the Agency’s 

financial management services. 

The decision to select BPD as a shared financial services provider resulted in an initial 

cost avoidance in FY 2006 of about $875,000 when compared with the cost of remaining 

with the existing financial management service provider. 

While FT staffing costs have been reduced, and while BPD’s ongoing costs are probably 

less than those that would have been incurred with the prior financial management 

service provider, overall Agency costs after the outsourcing to BPD do not show a 

decline when one considers that several former FT staff members were reassigned to 

other positions within the Agency. 

FARM CREDIT ADMINISTRATION ♦ OFFICE OF INSPECTOR GENERAL 2 
To maintain the success of shared financial services, the Agency must continue 

monitoring BPD’s performance and ensure the cost of shared financial services with 

BPD remains the best value. 

The Outsourcing Decision 

The Agency’s decision to outsource several financial functions was supported by a 

workforce study and a well considered business case for shared financial services. 

Workforce Study - In June 2005, an independent organization completed a workforce 

study of support offices at FCA including OMS. The resulting report noted issues that 

needed to be addressed with the Agency’s financial management function. These 

included: 

• the need to improve the delivery of complete and reliable, consistent, and timely 

financial management services, especially in the areas of travel and financial 

management, and reporting; 

• the excessive staff time spent in preparing financial reports; 

• the lack of strong program management regarding the movement to and use of 

new financial management systems; and 

• the lack of competencies and technical skills important to the financial 

management function. 

The study recommended the Agency outsource its financial management services under 

a shared service agreement. 

Business Case - As previously mentioned, in 2005 OMS decided to consider obtaining 

a broader range of financial services than just a financial management system. The 

intent was to determine if a service provider could offer an array of financial services at a 

better value than using a vendor’s financial management system and conducting 

financial services in-house. The FT gathered proposals on their costs for financial 

management systems, accounting and financial reporting services, credit card 

management, travel management and procurement. OMS concluded BPD would be the 

best value for shared financial services based on the following: 

• cost, 

• built-in performance measures, 

• reduction in FT staffing costs, 

• adequate security over sensitive data, and 

• the ability to produce agency-specific reports. 

FARM CREDIT ADMINISTRATION ♦ OFFICE OF INSPECTOR GENERAL 3 
Efficiencies Gained 

In November 2005, the OMS Director provided a memo to the Agency’s Chairman and 

Chief Executive Officer in support of his decision to proceed with signing an agreement 

for comprehensive financial services from BPD. The Agency’s goal was to improve 

financial management efficiency and financial services provided to the Agency’s 

managers and staff, and reduce FT staff costs. 

According to the OMS Director and the FT supervisor, there have been several benefits 

from the shared financial services from BPD including FT resources being better utilized. 

For example, the FT: 

• now can focus on continuously improving the quality of data being inputted into 

the financial system and ensuring financial records reconcile, 

• has more time to develop financial reports for Agency manager’s, assisting them 

in making better business decisions, and 

• no longer has to be the primary resources for travel system questions from 

Agency staff. 

Costs of Shared Financial Services 

Another benefit the Agency wanted to achieve with shared financial services was lower 

financial management costs. Financial management costs have been reduced 

somewhat since FY 2005 (prior to outsourcing) with the decline in FT staff accounting for 

the reduction. However, because a significant portion of the FT staff reduction was 

accomplished through reassigning staff to other offices within the Agency, reduced 

financial management costs cannot be projected as overall Agency-wide savings. 

Financial Management Cost Savings - The following chart shows that financial 

management cost savings has been achieved since the agreement with BPD. The chart 

also shows that the savings is attributable to FT staff reductions. Procurement service 

costs are not included in the chart. 

 

FARM CREDIT ADMINISTRATION ♦ OFFICE OF INSPECTOR GENERAL 4 
 Financial Management Cost Comparison from FY 2005-2009 

0

300,000

600,000

900,000

1,200,000

1,500,000

1,800,000

2,100,000

FY'05 FY'06 FY'07 FY'08 FY'09*

FT Personnel Cost

Outsourcing Cost

*Projected costs 

This chart’s representation is further reflected in Table 1 below. 

Table 1: Financial Management Costs from FY 2005-2009 

FY2005 FY2006 FY2007 FY2008 FY2009 

FT Personnel Cost $1,294,210 $1,080,196 $774,177 $792,362 $795,870 

Outsourcing Cost $603,234 $655,613 $577,084 $683,533 $881,438 

Total $1,897,444 $1,735,809 $1,351,261 $1,475,895 $1,677,308 

The following should be noted: 

FY 2005 - Outsource cost only for a financial management system. 

FY 2006 - In April 2006, BPD began providing comprehensive shared financial services for the remainder of FY 2006. 

FY 2007 - Four FT employees were reassigned to other offices within the Agency. 

FY 2009 - Outsourcing cost is a projection and FT personnel costs are budgeted amounts. 

In FY 2005, prior to outsourcing to BPD, FT personnel costs and the cost for a financial 

service provider’s financial management system were about $1.90 million. Projections 

for FY 2009 show FT personnel costs and BPD costs at about $1.68 million. While FY 

2009 projected costs are less than in FY 2005, four former FT staff members were 

reassigned within the Agency. Therefore, overall Agency costs after outsourcing to BPD 

are somewhat higher when one considers the former FT staff that were reassigned. 

FARM CREDIT ADMINISTRATION ♦ OFFICE OF INSPECTOR GENERAL 5 
Staff Reassignment - The chart below shows the FT staff changes since the formation 

of OMS and the inception of the BPD shared service agreement. Four FT staff members 

were reassigned elsewhere in the Agency as depicted in the middle segment below. The 

former Chief Financial Officer (CFO) retired subsequent to the formation of OMS. The 

Financial Operations Specialist also retired. The two employees who left the Agency 

represented approximately 22% of the FT personnel cost before the reorganization. 

Finance Team Staff Changes 

Assistant CFO for System 

Assistant CFO for Reporting 

Financial Manager 

System Accountant 

Budget Analyst 

Current FT 

Remained

as FCA

Reassigned employees

to other 

Agency 

offices 

Payment Officer 

Operating Accountant 

Financial Assistant 

Voucher Examiner 

No longer FCA employees Chief Financial Officer* 

Financial Operations Specialist 

*The Director of OMS serves as the Agency’s CFO. 

Monitoring BPD Performance 

Monitoring Performance - To ensure performance goals are being met, the FT 

monitors performance measures within the BPD agreement and has developed a 

“lessons learned report” outlining issues regarding BPD’s performance. 

Performance Measures - Performance measures are an effective mechanism to 

evaluate how well BPD is performing financial services and encourages efficient 

performance from BPD. Performance measures were established for the financial 

system, accounting, financial reporting, and travel services and are contained within 

the agreement. Overall, the performance measures established are adequate for 

the Agency to ensure performance under the agreement with BPD. 

Lessons Learned Report - Another tool the FT uses to monitor BPD’s performance 

is a “lessons learned report.” This report is usually issued quarterly to BPD and is 

used to communicate issues that need to be addressed. The report is continuously 

updated as issues are closed and new ones surface. According to the FT, BPD has 

been very responsive to the “lessons learned report.” The report has also been 

beneficial to BPD because they are able to use the report when working with other 

agencies on common issues. 

FARM CREDIT ADMINISTRATION ♦ OFFICE OF INSPECTOR GENERAL 6 
Monitoring Cost - Table 2 below outlines the percentage change, actual and projected, 

in BPD agreement costs from FY 2007- FY 2009. 

 Table 2: Percentage of Change in BPD Agreement Costs 

FISCAL YEAR PERCENTAGE OF CHANGE 

2007 to 2008 18% increase 

2008 to 2009 29% potential increase 

BPD costs rose significantly in FY 2008 and are projected to increase substantially in FY 

2009. These cost increases are primarily attributed to changes in the BPD pricing 

module in FY 2007. 

From FY 2006 - FY 2009, the Agency will have expended approximately $3.14 million for 

shared procurement, travel, and financial management services. The OMS Director 

stated that after five years with the BPD the FT plans to do an in-depth analysis to make 

sure the Agency is continuing to receive the best value. Since this agreement with BPD 

represents one of the Agency’s largest expenditures, a more frequent periodic 

comprehensive evaluation is appropriate. 

Recommendation Resolution 

On May 13, 2008, the OMS Director provided a memo to the Inspector General 

addressing the draft report. The memo stated that as a result of the draft report the FT 

immediately conducted a comprehensive evaluation of the BPD agreement to include all 

areas stated in the draft report recommendation. In addition, the OMS Director created 

new direction to the FT to evaluate FCA’s financial service agreement every three years 

or sooner. 

 

Attached to the memo was the BPD evaluation report given to the Chief Executive 

Officer. The report included an assessment of BPD’s performance measures, 

efficiencies gained, cost trends and benchmarking. The report concluded that BPD 

continues to be the best value for shared financial services. 

FARM CREDIT ADMINISTRATION ♦ OFFICE OF INSPECTOR GENERAL 7 
We have reviewed the evaluation report on BPD and found the information provided 

adequately addressed the draft report recommendation which stated: 

 

Prior to the FY 2010 BPD agreement and on a periodic basis thereafter, the OMS 

Director should provide the Chief Executive Officer with a comprehensive evaluation 

report including but not limited to: 

• BPD’s performance measures achievement, 

• efficiencies being gained and any yet to be realized, 

• an analysis of BPD cost trends, actual and projected, and 

• benchmarking shared financial services costs with other Federal agencies that 

use shared financial service providers. 

 

FARM CREDIT ADMINISTRATION ♦ OFFICE OF INSPECTOR GENERAL 8 
FARM CREDIT ADMINISTRATION ♦ OFFICE OF INSPECTOR GENERAL 9 

REPORT 

Fraud    |    Waste    |    Abuse    |    Mismanagement

FARM CREDIT ADMINISTRATION

OFFICE OF INSPECTOR GENERAL

• Phone:  Toll Free (800) 437‐7322; (703) 883‐4316

• Fax:   (703) 883‐4059

• E‐mail:  fca‐ig‐hotline@rcn.com

• Mail:   Farm Credit Administration

Office of Inspector General

1501 Farm Credit Drive

McLean, VA  22102‐5090