Financial Management Systems: Experience with Prior Migration and Modernization Efforts Provides Lessons Learned for New Approach
Published: 2010-09-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2004, the Office of Management and Budget (OMB) launched the financial management line of business (FMLOB) initiative, in part, to reduce the cost and improve the quality and performance of federal financial management systems by leveraging shared services available from external providers. In response to a request to study FMLOB-related issues, this report (1) identifies the steps agencies have taken, or planned to take, to modernizing their core financial systems and migrate to an external provider and (2) assesses the reported benefits and significant challenges associated with migrations, including any factors related to OMB's new financial systems modernization approach. GAO's methodology included surveying federal agencies to obtain the status of their financial management systems as of September 30, 2009 (prior to OMB's March 2010 announcement of a new approach), and interviewing officials with selected agencies, external providers, and OMB. In oral comments on a draft of this report, OMB stated its position that it was too early for GAO to draw conclusions on its new approach because it is still a work in progress. For this reason, GAO is not making any new recommendations. However, GAO observes that the experience and challenges related to prior migration and modernization efforts offer important lessons learned as OMB continues to develop and implement its new approach.
section_title: What GAO Found
paragraphs: In an effort to capitalize on new technologies to help address serious weaknesses in financial management and help meet their future financial management needs, federal agencies continued to modernize their core financial systems, which often has led to large-scale, multiyear financial system implementation efforts. For the last 6 years, OMB has promoted the use of shared services as a means to more efficiently and effectively meet agency core financial system needs. Overall, 14 of 23 civilian Chief Financial Officer (CFO) Act agencies are planning to complete their efforts to deploy 14 new core financial systems at various times through fiscal year 2018, and in connection with their modernization efforts, 10 of the 14 agencies are migrating, or planning to migrate, hosting and application management support services to external providers. GAO also found that the CFO Act agencies were not using a limited number of external providers, a critical element of OMB's original approach. Five of the 10 agencies planned to rely on five different commercial providers, while 2 of the 10 planned to rely on the same federal provider and 3 had not determined the provider. In contrast, smaller agencies were more frequently relying on the four federal shared service providers to provide core financial system support services to leverage the benefits of using external providers. The most common benefits of migrating cited by CFO Act agencies were external providers' expertise, the potential for cost savings, and the agencies' ability to focus more on mission-related responsibilities. However, CFO Act agencies and external providers cited various challenges affecting modernization and migration efforts, such as reengineering business processes and the ability of external providers to provide specific solutions that meet complex agency needs. In March 2010, OMB announced a new financial systems modernization approach that focuses on the use of common automated solutions for transaction processing, such as invoicing and intergovernmental transactions. OMB issued a memorandum in June 2010 that included guidance for key elements of its new approach, such as agencies splitting financial system modernization projects into smaller segments. This new guidance also requires CFO Act agencies to halt certain modernization projects, pending OMB review and approval of revised project plans. Important aspects of the new approach have not yet been developed or articulated and OMB has stated that it plans to develop additional guidance. In GAO's view, it is critical that OMB's new guidance elaborate on the new approach and address key issues such as goals and performance plans clearly linked to strategies for achieving them, a governance structure, and specific criteria for evaluating projects. GAO believes these issues need to be addressed to reduce risks and help ensure successful outcomes as OMB moves forward with its new approach. GAO will continue to work with OMB to monitor the implementation of its new approach.

section_title: Letter
paragraphs: Over the years, the federal government has spent billions of dollars  annually on developing or acquiring, implementing, and maintaining  financial management systems that often fail to meet cost, schedule, and  performance goals. Recognizing the seriousness of this problem, in March  2004, the Office of Management and Budget (OMB) launched the financial  management line of business (FMLOB) initiative, which, among other  things, provided an approach to increase agencies’ use of shared service  solutions in connection with their modernization efforts. Specifically, this  approach required agencies to migrate certain common services  supporting their core financial systems, such as information technology  (IT) hosting and application management, to a limited number of external  providers. According to OMB, shared service solutions would enable  economies of scale by centrally locating, or consolidating, solution assets  and reusing federal and commercial subject matter expertise through  common acquisitions, interface development, and application  management. OMB also expected the reduction in the number of agencies  implementing their own systems to reduce the risks, and associated costs,  of systems implementations. As previously reported, we have supported  and called for such initiatives to standardize and streamline common  systems, which can reduce costs. The effectiveness of financial  management systems is critical in facilitating agencies’ ability to institute  strong financial management and internal controls.
In response to your request to study a range of FMLOB-related issues, in  May 2009, we reported that although OMB had made some progress  toward implementing the initiative, extensive work remained before its  goals would be achieved. Specifically, OMB had not fully addressed our  March 2006 recommendations to fully integrate four key building blocks  into FMLOB implementation efforts, specifically, the need to (1) develop a  concept of operations to help guide FMLOB-related activities, (2) define  standard business processes to promote consistency within and across  agencies, (3) develop a strategy and establish a timetable for ensuring that  agencies’ financial management systems are migrated to a limited number  of service providers, and (4) define and effectively implement applicable  disciplined processes necessary to properly manage financial management  system implementation projects. This report addresses the remaining  aspects of your request dealing with migration efforts at agencies and  external providers, including (1) identifying the steps agencies have taken,  or plan to take, toward modernizing their core financial systems and  migrating to an external provider and (2) assessing the reported benefits  associated with migrations and significant challenges, including any  factors related to OMB’s newly announced financial systems  modernization approach (new approach), that may affect modernization  and migration efforts at agencies and external providers. Specifically, in  June 2010, during the performance of our work, OMB announced key  elements of its new approach, which will focus, in part, on the  development of common automated solutions for transaction processing,  the requirement for agencies to split financial system modernization  projects into smaller segments not to exceed 24 months, and increasing  oversight and review of financial system projects. Further, under the new  approach, OMB is no longer requiring the use of external providers in all  cases for core financial systems, but supports such arrangements when  they are cost effective.
To identify the steps agencies have taken or plan to take in their financial  systems migration and modernization efforts and assess related benefits  and challenges, we conducted a survey of the 24 Chief Financial Officers  (CFO) Act of 1990 agencies to obtain information regarding their current  and planned core financial systems and migration activities as of  September 30, 2009. To obtain additional information on modernization  and migration efforts among selected agencies, we performed four agency  case studies. To identify FMLOB efforts among smaller agencies, in  addition to the Federal Communications Commission case study, we  interviewed knowledgeable officials with the Small Agency Council and  the four OMB-designated federal shared service providers (SSP). We also  reviewed and analyzed policies and guidance related to migration and  modernization activities obtained from OMB and the Financial Systems  Integration Office (FSIO) and interviewed key officials of these  organizations to obtain their perspectives on FMLOB-related benefits and  challenges. In addition, we interviewed key officials of two commercial  vendors supporting two of the case study agencies and the four federal  SSPs concerning their FMLOB-related efforts at CFO Act and non-CFO Act  agencies. We also reviewed guidance issued by OMB regarding its new  approach for federal financial management systems.
We conducted this performance audit from June 2009 through September  2010 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. Appendix I includes  additional details on our scope and methodology. We requested comments  on a draft of this report from the Acting Director of OMB or his designee.  The OMB Controller provided oral comments on the draft report, including  technical comments, which we incorporated as appropriate into the  report.
subsections: section_title: Background
paragraphs: Modernizing financial management systems so they can produce reliable,  useful, and timely data needed to efficiently and effectively manage the  day-to-day operations of the federal government has been a high priority  for Congress for many years. In recognition of this need, and in an effort to  improve overall financial management, Congress passed a series of  financial and IT management reform legislation dating back to the early  1980s, including the CFO Act and the Federal Financial Management  Improvement Act of 1996 (FFMIA). FFMIA, in particular, requires the 24  departments and agencies covered by the CFO Act to implement and  maintain financial management systems that comply substantially with   (1) federal financial management systems requirements, (2) applicable  federal accounting standards, and (3) the U.S. Government Standard  General Ledger at the transaction level. FFMIA also requires auditors, as  part of the 24 CFO Act agencies’ financial statement audits, to report  whether those agencies’ financial management systems substantially  comply with these requirements. In addition, the Clinger-Cohen Act of  1996 requires OMB to improve the acquisition, use, and disposal of IT by  the federal government and continually assess the experiences of  executive agencies in managing IT, among other responsibilities.  Following enactment of this law, OMB revised Circular No. A-130,  Management of Federal Information Resources, which established policy  for the management of federal information resources and designated OMB  as responsible for overall leadership and coordination, as well as the  development and maintenance of a governmentwide strategic plan for  federal information resources management within the executive branch.  Despite these efforts, long-standing financial management systems  weaknesses continue to present a formidable management challenge in  providing accountability to the nation’s taxpayers and agency financial  statement auditors continue to report that many agencies’ systems do not  substantially comply with FFMIA requirements.
subsections: section_title: FMLOB Migration and Other Financial Management System Guidance
paragraphs: In March 2004, OMB launched the FMLOB initiative, in part, to reduce the  cost and improve the quality and performance of federal financial  management systems by leveraging shared service solutions and  implementing other reforms. The stated goals of the FMLOB initiative  were to (1) provide timely and accurate data for decision making;   (2) facilitate stronger internal controls that ensure integrity in accounting  and other stewardship activities; (3) reduce costs by providing a  competitive alternative for agencies to acquire or develop, implement, and  operate financial management systems through shared service solutions;  (4) standardize systems, business processes, and data elements; and   (5) provide for seamless data exchange between and among federal  agencies by implementing a common language and structure for financial  information and system interfaces. According to a December 2005 OMB  memorandum, to achieve the FMLOB vision—and enable efforts to  achieve its goals—federal agencies must have competitive options  available for financial systems. OMB described a shared service solution  framework consisting of a limited number of providers that deliver  competitive alternatives for agencies investing in financial system  modernizations and provide financial management services for multiple  organizations. OMB stated that the economies of scale and skill of a  provider will allow it to provide federal agencies with a lower-risk, lower- cost, and increased service quality alternative for financial system  modernization efforts. According to OMB, when the FMLOB is successful,  federal agencies will have the ability to migrate from one solution to a  more competitive or better performing alternative that is offered by a  limited number of stable and high-performing providers.
In May 2006, OMB established a migration policy and issued its  Competition Framework for FMLOB Migrations to provide guidance to  agencies planning to migrate their financial management systems and  services. According to this migration policy, “with limited exception, an  agency seeking to upgrade to the next major release of its current core  financial management system or modernize to a different core financial  management system must either migrate to a  or qualified private  sector provider, or be designated as an . At a minimum, agencies  must consider pursuing hosting and application management shared  services. However, agencies may also consider other shared services, such  as accounting or transaction processing.” This policy was subsequently  incorporated into OMB Circular No. A-127 in January 2009; this circular  provides guidance on the use and selection of external providers to ensure  that agencies rely on such providers to help manage their systems and no  longer develop their own unique systems.
As program manager for the FMLOB initiative, FSIO had a significant role  in achieving FMLOB goals, including the development of standard  business processes, core financial system requirements, and testing and  product certification. In March 2010, OMB announced that FSIO was  ceasing operations effective March 31, 2010, stating that FSIO had  achieved its objectives of developing governmentwide financial  management business processes and data elements. As part of its new  approach, OMB also announced in March 2010 the creation of the Office of  Financial Innovation and Transformation (FIT) within the Department of  the Treasury’s Office of Fiscal Service. FIT’s stated mission includes   (1) helping set a new course for federal financial management using  automated solutions to reduce duplicate work at individual agencies and  (2) assisting in ensuring consistency with a long-term financial  management systems strategy for the federal government. In June 2010,  OMB announced key elements of its new approach, which will focus on  (1) implementing smaller project segments that deliver critical  functionality sooner, (2) increasing oversight and review of financial  system projects, (3) promoting higher impact shared service efforts related  to transaction processing, (4) assessing compliance with financial system  requirements, and (5) revising the process for certifying financial  management software.
section_title: Some Agencies Have Used Migration of Core Financial Systems as Part of Modernization Efforts, but Shared Services Use Is Limited
paragraphs: In an effort to capitalize on new technologies to help address financial  management weaknesses and help meet their financial management  needs, about half of the CFO Act agencies are in the process of or have  plans to modernize their core financial systems, which often involve large- scale, multiyear financial system implementation efforts. According to the  results of our survey, 12 of 23 civilian CFO Act agencies have migrated, or  plan to migrate, certain services supporting 16 current systems to 12  external providers in connection with their modernization efforts. Because  of the number of separate external service providers involved, the  progress toward a shared service framework among the CFO Act agencies  has been limited.
subsections: section_title: Agencies’ Efforts to Modernize Core Financial Systems to Meet Financial Management Needs
paragraphs: Over the years, federal agencies have struggled to develop and implement  numerous core financial systems to help meet their financial information  needs for managing and overseeing their day-to-day operations and  programs. As shown in table 1, the civilian agencies, representing 23 of  the 24 CFO Act agencies, identified 45 fully deployed core financial  systems in use as of September 30, 2009, in response to our survey of the  24 CFO Act agencies. While some of these agencies have recently  completed efforts to deploy modernized systems, 17 agencies continue to  use 25 aging legacy systems to help meet their needs, including 8 core  financial systems placed into operation prior to 1990. Additional  information on the 45 current civilian CFO Act agency core financial  systems can be found in table 5 of appendix II.
Recognizing the importance of effective core financial systems in meeting  their financial information needs and efforts to address financial  management weaknesses, many agencies are modernizing these current  core financial systems. In this regard, 14 of the 23 civilian CFO Act  agencies identified 14 systems they plan to fully deploy after fiscal year  2009, which will replace 27 of the current legacy systems. However,  agencies provided this information prior to the issuance of OMB’s June  2010 guidance concerning oversight and review of financial system  projects, and some of these 14 planned systems may no longer be viable  projects under that guidance. Additional information on the 14 planned  civilian CFO Act agency core financial systems can be found in table 6 of  appendix II.
In addition to the 23 civilian CFO Act agencies that responded to the  survey, the Department of Defense (DOD) identified one current system,  even though it responded that it has more than 100 core financial  systems. DOD also identified 6 enterprise resource planning (ERP)  systems it plans to deploy from 2011 through 2017. For example, DOD’s  General Fund Enterprise Business System is an ERP system that is  expected to eliminate 87 current systems and to be used by approximately  79,000 users once it is fully deployed in January 2012. Detailed information  that DOD reported on its current and planned systems is included in tables  5 and 6 in appendix II.
Because of the scope and complexity of agency modernization efforts,  especially those involving highly integrated ERP systems, these large-scale  projects often involve system implementations extending over several  years before their intended benefits can be realized. For example, in 1999,  the Army initiated its Logistics Modernization Program (LMP) in order to  better manage its inventory and repair operations at various depots.  Although the Army anticipates completing its 12-year multiphased  deployment in fiscal year 2011, this project reflects the substantial  challenges in large-scale deployments, such as a lack of a comprehensive  set of metrics with which to measure the success of implementation.  Similarly, the Department of Justice (DOJ) is involved in a multiyear  modernization effort to replace six core financial systems and multiple  procurement systems operating across the agency with a new integrated  core financial system (referred to as the Unified Financial Management  System, or UFMS). DOJ expects to complete its efforts to deploy UFMS in  2013, 10 years after the initial alternatives analysis related to this project  was completed. Additional information concerning core financial system  modernization efforts at DOJ and other selected case study agencies can  be found in appendix III.
section_title: Migration of Core Financial Systems to External Providers
paragraphs: Although OMB’s previous FMLOB guidance focused on migrating support  services in connection with new or upgraded agency systems rather than  previously deployed systems, 12 of the 23 civilian CFO Act agencies  reported that they had already migrated, or plan to migrate, IT hosting or  application management services supporting 16 of the 45 current systems  that had already been fully deployed as of September 30, 2009. Further,  these agencies plan to rely on eight different commercial providers and  four federal SSPs to provide services for current systems. Of the 32  expected systems noted in table 1, there are 14 agencies relying on or  expecting to rely on 11 providers—4 federal SSPs and 7 commercial  providers—to support 17 core financial systems. Table 2 summarizes  civilian agencies’ use of external providers—either federal SSPs or  commercial providers—for hosting or application management of the 45  current, 14 planned, and 32 expected core financial systems.
Overall, 14 of the 23 civilian CFO Act agencies are planning to complete  their efforts to deploy 14 planned systems at various times through fiscal  year 2018. Ten of these 14 agencies reported that they migrated, or plan to  migrate, IT hosting and application management services supporting 10 of  the 14 core financial systems they plan to fully deploy after September 30,  2009. In connection with these migrations, 5 of the 10 agencies plan to rely  on five different commercial providers, while 2 of the 10 rely, or plan to  rely, on the same federal SSP to provide these services, and 3 of the 10  have not determined who the provider will be. In addition, DOD is  planning to use two commercial providers for 2 of its 6 planned systems.  Table 6 in appendix II includes additional information concerning the  migration of selected support services for the 14 planned civilian agency  core financial systems and 6 planned DOD systems.
In addition to IT hosting and application management support services,  eight CFO Act agencies reported that they have migrated, or plan to  migrate, transaction processing services to external providers.  Specifically, DOD, the Department of Homeland Security, the Department  of Labor, and the Nuclear Regulatory Commission (NRC) (as shown in  table 6 of app. II) reported that they plan to rely on external providers to  provide transaction processing support services for their planned systems  while the Department of Transportation, the Department of the Treasury,  the General Services Administration, and NRC (as shown in table 5 of app.  II), reported that they already rely on external providers for these services  for their existing systems. Rather than migrating these services, some large  agencies are consolidating their transaction processing activities in-house  at the agency level or integrating internal accounting operations through  their own internal agency shared solution (e.g., the Department of  Agriculture and DOJ, as described in app. III).
In June 2010, OMB stated that its attempts to mandate the use of shared  services under its previous policy—for hosting and application  management—yielded inconsistent results as medium and large agencies  encountered the same types of costs and risks with an external provider as  they did when modernizing in-house. In contrast, smaller agencies are  more frequently relying on external providers to provide core financial  system support services to leverage the benefits of using external  providers, as discussed in more detail later in this report. Specifically,  according to officials at the four federal SSPs, 90 non-CFO Act agencies  rely on the support services these providers offer. Federal SSP officials  also stated that smaller agencies more frequently rely on the transaction  processing support services they provide. For example, according to an  official from one federal SSP, it provides transaction processing services  to all of its 45 non-CFO Act client agencies. See appendix IV for  information on the number of clients serviced by federal SSPs.
section_title: Benefits and Challenges of Agency Migrations Raise Important Issues for OMB’s New Financial Systems Modernization Approach
paragraphs: Agencies and external providers reported that migrating support services  to external providers offers advantages for helping smaller agencies, in  particular, to capitalize on the benefits associated with sharing the  services and solutions available through external providers. However,  while federal agencies and external providers have made varied progress  toward implementing the FMLOB initiative, they continue to face  significant challenges affecting their efforts to modernize core financial  systems and migrate selected services supporting them. OMB officials  acknowledged that efforts to capitalize on shared services at large  agencies have achieved limited success and, in a March 2010  memorandum, announced a need to develop a new approach for financial  systems in the federal government. The benefits and challenges  experienced through agency and provider efforts to implement the FMLOB  initiative offer important lessons learned that if considered could assist  OMB in developing its new approach.
subsections: section_title: Potential Benefits and Challenges of Agency Migrations to External Providers
paragraphs: Modernization and migration efforts highlighted a number of lessons  learned regarding potential benefits and challenges of agency migrations  to external providers. The potential benefits and challenges summarized in  this section were identified by the 24 CFO Act agencies, smaller, non-CFO  Act agencies, and external providers through survey results, interviews,  and agency case studies. We also identified challenges with agency  migrations related to OMB’s guidance on competition. See appendix V for  more details on key benefits and challenges reported related to agency  migration and modernization efforts.
As shown in table 3, external providers’ experienced staff, the potential for  cost savings through shared services, increased economies of scale, and  the ability to focus on mission-related responsibilities were cited in the  survey responses of CFO Act agencies as some of the benefits and  advantages of migrating core financial system support services to external  providers. For example, Treasury cited potential cost savings and benefits  associated with using an external provider such as resource sharing,  provider expertise in solving application problems, and using cloud  computing concepts. In May 2010, we also reported potential benefits  associated with cloud computing, such as economies of scale and the  faster deployment of patches to address security vulnerabilities.  According to external provider officials, smaller agencies rely more  frequently on external providers for transaction processing than CFO Act  agencies and benefit from providers’ use of shared instances of software  applications and standard interfaces across multiple clients, and their  ability to more efficiently process complex transactions.
To help realize these benefits, CFO Act agencies also identified a variety of  key factors that contribute to successful migrations. Many of the factors  cited involve the effective use of disciplined processes, such as clearly  defining requirements and performing gap analyses to ensure that agency  needs will be met, performing appropriate testing and data conversion  procedures, minimizing customizations of software, and reengineering  business processes to facilitate greater standardization. In addition,  agencies cited the need for (1) appropriate and adequate resources to lead,  plan, manage, execute, and oversee modernization and migration  activities; (2) clearly defined expected outcomes and responsibilities of  key stakeholders; and (3) effective service-level agreements and other  mechanisms that could help ensure that the intended benefits of migrating  are achieved.
CFO Act agencies also cited various concerns about migrating to external  providers, such as the ability of external providers to provide solutions  that meet the complex and unique needs associated with large agency  migrations. As shown in table 4, CFO Act agencies expressed concerns  about the general loss of control, flexibility, and subject matter expertise  and various risks they will experience if IT hosting, application  management, and transaction processing are migrated and whether  providers had the capacity to meet the extensive needs associated with  large CFO Act agencies. External providers acknowledged these concerns,  but cited additional challenges affecting their migration-related efforts,  such as agencies’ resistance to adopting common processes used by  providers and the lack of a clear mechanism for ensuring that agency  migrations occur as intended.
We found similar migration challenges related to OMB’s guidance on  competition affecting agency and external provider migration efforts, its  implementation, and effective oversight. For example, we found that  agencies were not always required to migrate to an external provider and  did not always conduct a competition for IT hosting and application  management because they had already decided to use existing in-house  resources to meet their needs (e.g., DOJ, which is discussed in more detail  in app. III). On the other hand, we found that those agencies migrating to  external providers were not using a limited number of external providers,  raising significant questions regarding the extent to which the services  they are to provide will be shared with other agencies and any related  potential cost savings will be realized. Specifically, as previously  discussed, based on survey responses, 14 CFO Act agencies were relying,  or planning to rely, on a total of 11 different external providers to support  17 expected systems and providers for 4 of the 17 systems were still to be  determined.
Unlike similar efforts to implement other OMB electronic government (E- gov) initiatives, the FMLOB guidance does not provide a mechanism for  determining the appropriate number of providers needed or describe a  governance structure to help ensure that agencies migrate to one of the  specific providers identified. For example, prior policies for the human  resource line of business (HRLOB) and E-Payroll initiatives both involved  the migration of agency-performed functions common across federal  agencies to specifically designated shared service centers. Further, in  connection with the E-Payroll initiative, established in June 2002, four  providers were selected to furnish payroll services for the executive  branch. In its latest annual report to Congress on E-gov benefits, OMB  reported that migrations of payroll functions performed by other agencies  to these providers had been completed.
section_title: Lessons Learned Raise Key Issues to Consider for Achieving Modernization Goals under OMB’s New Approach
paragraphs: OMB officials acknowledged that efforts to modernize financial  management systems under its FMLOB initiative have achieved limited  success and that a new approach is needed. Detailed information on  OMB’s new approach is not yet available because of its early stage of  implementation. However, we have summarized the key elements of its  new approach and identified related issues, generally based on lessons  learned from prior migration and modernization efforts, for OMB to  consider as it moves forward with its implementation.
subsections: section_title: Summary of OMB’s New Approach
paragraphs: To address ongoing challenges with financial management practices, OMB  announced a new financial systems modernization approach, which  encompasses the following five key areas.
Shared services for transaction processing. In March 2010, OMB and  Treasury announced the creation of FIT, within Treasury, effective on  April 5, 2010. FIT is expected to coordinate with the CFO Council to  identify and facilitate the acquisition or development of initial operating  capabilities for automated solutions for transaction processing. Initially,  FIT’s efforts will focus on developing operating capabilities for vendor  invoicing and intergovernmental transactions. According to OMB, based  on the success of interested agencies’ efforts to pilot initial capabilities of  new solutions, they will be phased in across the federal government as  other agencies request to adopt them. OMB stated that its previous policy  captured under the FMLOB initiative—requiring agencies to either serve  as SSPs or leverage their services—will no longer be mandated in all  cases, but supports such arrangements when they are cost effective.
Segmented approach for deploying systems. OMB’s new approach for  agencies seeking to deploy a financial system includes limiting the overall  length of development projects to 24 months and splitting them into  segments of 120 days or less, in part to help simplify planning,  development, project management, and other tasks and prioritize the most  critical financial functions.
Oversight and review of financial system projects. According to the  June 2010 memorandum, agencies should identify upfront a series of  milestones, warning flags, and stop points over the course of the segment  life cycle that if deemed necessary, could result in the project being  suspended and returned to planning. In addition, mechanisms for review  of project status by senior management should be incorporated into  project plans. In this regard, the memorandum directed CFO Act agencies  to immediately halt activities, as of the date of the memorandum, on  financial system modernization projects over a specified dollar threshold  pending OMB review and approval of revised agency project plans  reflecting this guidance. The guidance also stated that OMB will review  project status on a quarterly basis through fiscal year 2012 and that project  segment milestones must be met in order to release funding for additional  segments. In addition, OMB announced the establishment of the  Financial Systems Advisory Board under the CFO Council, which will  make recommendations to OMB on selected projects being reviewed in  accordance with the memorandum.
Compliance with financial system requirements. OMB stated in its  June 2010 memorandum that current core financial system requirements  remain in effect and federal agencies have an ongoing responsibility to  comply with them. OMB is also initiating a performance-based approach  for compliance with financial system requirements that it believes will  reduce the cost, risk, and complexity of financial system modernizations.  OMB plans to issue a revision to OMB Circular No. A-127, Financial  Management Systems, which will update existing requirements and  include new guidance on how agencies and auditors will assess  compliance with these requirements.
Process for certifying financial management software. In March  2010, OMB announced the discontinuation of FSIO’s core financial system  software testing and certification function and announced that FSIO  operations would cease effective March 31, 2010. OMB’s June 2010  memorandum states that OMB is reforming the software testing and  certification program by shifting the accountability of software  performance to vendors through self-certification. Under this approach,  agencies will hold vendors accountable in the same manner in which other  contractual obligations are enforced and will be able to hold contractors  specifically accountable for false certifications. OMB also plans to provide  additional details related to testing process changes in its revision to OMB  Circular No. A-127 and revisit this policy on an annual basis.
section_title: Key Issues Moving Forward
paragraphs: OMB’s decision to embark on this new approach raises several key issues  that have far-reaching implications for the government, software vendors,  and external providers. Recognizing that the new approach is in an early  stage of implementation, the steps taken so far do not fully describe a  strategy that will address these issues moving forward, nor do they yet  fully take into account lessons learned associated with previous  governmentwide modernization efforts, including, in particular, the  FMLOB migration activities discussed earlier in this report. Without  sufficient detail on how these issues are to be addressed, uncertainties  exist concerning the potential effectiveness of OMB’s new approach. The  following describes key issues related to each of the five areas of OMB’s  new approach.
How will the new approach be implemented and what governance structure will be  established to fully realize the benefits of common solutions and new  technologies?
How will new governmentwide shared solutions that are intended to perform  functions currently performed at agencies work with current core financial systems  and solutions?
What guidance will be provided to agencies to encourage their participation in, and  adoption of, the new solutions envisioned in the new approach?
Previous efforts to realize the benefits associated with shared services  have been challenging, in part because of the lack of a governance  structure that ensures agency adoption of shared service solutions. Agency  participation in the new solutions being developed by FIT is voluntary and  OMB’s previous policy regarding migrations to external providers is no  longer mandated. Therefore, the potential benefits that will actually be  realized through shared services are uncertain.
According to the Institute of Electrical and Electronic Engineers, a  concept of operations is normally one of the first documents produced  during a disciplined development effort. OMB officials stated that they  are developing an overall concept of operations but did not provide us an  estimated timeframe for its completion. We previously reported on the  need for this critical tool to provide an overall road map for describing the  interrelationships among financial management systems and how  information is to flow from and through them and within and across  agencies, and ensuring the validity of each agency’s implementation  approach. In addition, a concept of operations can be used to  communicate overall quantitative and qualitative system characteristics to  users, developers, and other organizational elements and would allow  stakeholders to understand the user organizations, missions, and  organizational objectives from an integrated systems point of view. We  recognize that OMB’s new approach is in an early implementation stage  and guidance is still being developed. However, implementing this  approach without certain policy guidance carries risk. For instance,  without a concept of operations that provides an overall road map to guide  implementation efforts, it is unclear how the new governmentwide  solutions envisioned under the new approach will integrate with current  or planned core financial systems, as well as how they will impact  numerous smaller agencies that have already migrated to federal SSPs.
In addition, the governance structure for implementing OMB’s new  approach will involve efforts expected to be performed by FIT. OMB has  described certain activities FIT is expected to perform, but additional  information concerning its purpose, its authority, and the resources to be  devoted to its efforts remain unclear. For example, although OMB stated  that FIT will assist in ensuring consistency with a long-term financial  management systems strategy for the federal government, the specific role  that FIT will play in developing or implementing a strategy or overseeing  efforts to achieve its goals has not yet been defined.
What actions will be taken to help ensure that agencies’ efforts to reduce the scope  of modernization projects so that they can be completed within 24 months do not  inappropriately emphasize schedule-driven priorities at the expense of achieving  event-driven objectives?
What guidance will be provided to ensure that agencies have developed an overall,  high-level system architecture that clearly defines specific development projects  that provide interim functionality?
Although efforts to reduce the scope of agency modernization projects so  that they can be completed within 24 months may result in more  manageable projects, we have previously reported on the importance of  capturing metrics that identify events and trends to assess whether  systems will provide needed functionality rather than schedule-driven  approaches that may lead to rework instead of making real progress on a  project. The process for ensuring that future modernization projects  conducted under the new approach will align with governmentwide and  agency goals, achieve measurable results, and minimize future work- arounds and rework has not yet been clearly described.
The Clinger-Cohen Act highlights the need for sound, integrated agency IT  architectures and lays out specific aspects of a process agency chief  information officers are to implement in order to maximize the value of  agencies’ IT investments. For example, consistent with OMB’s new  approach, the act also advocates the use of a modular acquisition strategy  for a major IT system. Under this type of strategy, an agency’s need for a  system is satisfied in successive acquisitions of interoperable increments.  However, the act also states that each increment should comply with  common or commercially accepted standards applicable to IT so that the  increments are compatible with other increments of IT that make up the  system. Some agency financial system modernization projects involve the  implementation of large, integrated ERP systems—which may be designed  to perform a variety of business-related tasks, such as accounts payable,  general ledger accounting, and supply chain management across multiple  organizational units—to help achieve agency strategic goals. Given the  tightly integrated nature of these systems, the extent to which  implementation projects can be modified and segmented to achieve OMB’s  objective for delivering interim functionality to help agencies address  critical needs has not yet been determined.
What specific criteria will be used to evaluate agency modernization project plans  and task orders requiring OMB review and approval?
What steps will be taken to ensure that appropriate procedures and resources are  in place at the agency level to avoid an improper impoundment of funds?
How will the roles and responsibilities of OMB, the Financial Systems Advisory  Board, or others involved in conducting the reviews and their efforts be defined and  measured?
Our prior work has linked financial management system failures, in part,  to agencies not effectively incorporating disciplined processes shown to  reduce software development and acquisition risks into their  implementation projects. We support the principle of increased oversight  and review of projects as called for in our prior recommendations.  However, the criteria for performing quarterly assessments of agency  modernization projects do not clearly define how such assessments will  evaluate the extent to which agencies are embracing disciplined  processes. Further, OMB’s template for capturing information on agency  projects identifies numerous aspects to be reviewed; however, agencies  are not required to provide information needed to assess the effectiveness  of testing and data conversion efforts necessary to ensure that substantial  defects are detected prior to implementation and that modifications of  existing data enable them to operate in a different environment. These and  other disciplined processes are critical for successfully implementing a  new system. Effective oversight to ensure that they are incorporated into  agency and governmentwide system implementation projects will also  continue to be a critical factor in the success of future modernization  efforts envisioned under OMB’s new approach.
In addition, OMB’s direction and CFO Act agencies’ implementation of the  direction to immediately halt activities on financial system IT projects  pending the outcome of OMB’s review present additional risks concerning  adherence to procedures to be followed for impoundments of budget  authority, as prescribed in the Impoundment Control Act of 1974. Not all  delays in obligating funds are impoundments, but where OMB has given  direction to agencies to halt the issuance of new task orders or new  procurements, we are concerned that agencies may misinterpret that as a  direction to withhold budget authority from obligation either during the  review process or upon the decision to terminate an investment. OMB  issues general guidance in OMB Circular No. A-11 on the applicable  procedures for compliance with the Impoundment Control Act. However,  in 2006, we reported to Congress and OMB that executive agencies had  improperly impounded budget authority following the President’s  submission of proposals to Congress to rescind certain budget authority  because, in part, agencies were not fully aware of the nature of the  proposals and their intended effect on currently available budget  authority. OMB officials stated that none of the 24 CFO Act agencies  identified an impoundment resulting from OMB’s direction, but OMB had  not evaluated the potential impact of the direction on the agencies’ budget  authority nor had it issued any clarifying guidance to the agencies to alert  them to the potential for impoundments that might arise if agencies  withheld budget authority by not awarding contracts as directed.
Moreover, OMB’s reliance on the Financial Systems Advisory Board to  assist in the review of agency modernization projects will depend, in part,  on the availability of sufficient resources to perform effective reviews and  having clear criteria for selecting projects and performing the reviews.  Having clear, measurable criteria for determining which projects are to be  assessed and that provides for objective assessments would help ensure  that they are performed completely and consistently for all projects and  that oversight efforts help achieve intended results. The extent to which  CFOs and chief information officers from major agencies or other experts  will be available and used to perform such reviews, including whether  such officials may be involved in reviewing projects related to their own  agencies, has not been specified. While OMB officials told us that they plan  to take steps to exclude officials from reviewing systems at their own  agencies, the process for doing so has not been disclosed.
How will system requirements and standard business processes be updated and  maintained?
What criteria will be used to determine whether a performance-based approach for  compliance with financial system requirements reduces the cost, risk, and  complexity of financial system modernizations?
What actions will be taken to help ensure that discontinuing FSIO’s software testing  and certification program does not result in lack of interoperability across agency  systems?
What steps will be taken to ensure that vendor self-certifications comply with  applicable provisions of the Federal Acquisition Regulation?
What guidance will be provided to agencies to clarify any changes in agency  responsibilities for testing and validating software functionality?
FSIO played a significant role in helping to identify and document federal  financial management system requirements and the standard business  processes on which they should be based. Such efforts were aimed at  preventing duplicative research and compilation across government. Prior  to ceasing operations effective March 31, 2010, FSIO was working to  finalize an exposure draft and issue an updated version of core financial  system requirements intended, in part, to reflect changes necessary to  align them with current standard business processes. OMB’s June 2010  memorandum states that it plans to issue a revision to OMB Circular No.  A-127 to update existing requirements and to provide guidance for  agencies and auditors on how to assess compliance. The extent to which  these changes will affect modernization efforts as well as improve the  ability of financial systems to help address long-standing weaknesses is  undetermined.
While OMB’s plan to require vendors to self-certify software functionality  is intended to shift accountability for software performance to vendors, it  does not change vendor accountability for delivering products that meet  specified standards. It also does not eliminate the need to develop and  update those standards as new requirements are established to facilitate  future improvements. Our work on financial management systems  modernizations and industry standards has identified the importance of  clearly defining systems requirements and managing those requirements  throughout system implementations, and failure to do so can have a  significant negative impact on their success. OMB plans to provide  additional guidance related to the change in the testing process in an  upcoming revision to OMB Circular No. A-127 and revisit the policy on an  annual basis. However, it is not clear if OMB will be defining system  standards and keeping those definitions up to date going forward or if  these tasks will be delegated to another entity.
The Government Performance and Results Act of 1993 (Results Act)  highlights the importance of strategic plans and performance plans as a  means for assisting agencies to achieve desired results. We previously  reported that strategies should be specific enough to enable an assessment  of whether they would help achieve the goals of the strategic plan. We  also reported on how collaborative efforts involving multiple agencies to  address crosscutting issues—such as federal financial management  modernization efforts—could benefit from a governmentwide strategic  plan that identifies long-term goals and the strategies needed to address  them, aligned performance goals, and improved performance information  that assists decision making to improve results. Recognizing OMB’s  critical role in governmentwide efforts, such as those envisioned under  this new approach, the Clinger-Cohen Act, and OMB’s implementing  guidance, OMB Circular No. A-130, specifically require OMB to develop a  strategic plan for managing information resources. Further, incorporating  performance plans, goals, and other key elements that facilitate  performance measurement and monitoring is essential for ensuring that  efforts are appropriately aligned to achieve desired results. It will be  essential that performance plans are expressed in an objective,  quantifiable, and measurable form that clearly links strategic goals with  the strategies to be used to achieve them.
section_title: Concluding Observations
paragraphs: OMB’s FMLOB initiative represented an important effort intended to  reduce costs and improve the quality and performance of federal financial  management systems that agencies depend on to generate reliable, useful,  and timely information needed for decision-making purposes. In  connection with their efforts to implement this initiative and modernize  their systems, many agencies took steps to migrate selected core financial  system support services to external providers. The use of external  providers by smaller agencies in particular highlights potential benefits to  be realized through these efforts, such as adopting common processes and  sharing software. Other agencies continue to rely on aging legacy  systems—even though they may have migrated to an external provider.  Agencies continue to be challenged with reengineering business processes  and effectively incorporating disciplined processes into their  implementation efforts to help ensure their success.
OMB announced a new strategy and plans for future financial management  system modernization efforts, and began issuing a series of guidance on its  new approach from March 2010 to June 2010. However, it is too early to  determine the extent to which this new approach will address the cost,  risk, and complexity of financial system modernizations. The experience  and challenges related to efforts to implement the FMLOB initiative  provide important lessons learned as OMB continues to develop and  implement its new approach. OMB has stated that it plans to develop  additional guidance, such as a governmentwide concept of operations, a  long-term financial management systems strategy, and a revised OMB  Circular No. A-127. Critical next steps will include OMB elaborating on its  new approach to address key issues. The following includes our  observations on these issues.
As we have previously reported in connection with the FMLOB initiative, a  concept of operations is one of the first and foremost critical building  blocks and is needed to provide an overall road map to guide  implementation of OMB’s new approach in accordance with best  practices. Until a well-defined concept of operations is developed,  questions remain on how the proposed governmentwide solutions can be  integrated with current and planned agency financial management  systems.
Articulating key aspects of a strategic plan, such as goals and performance  plans clearly linked to strategies for achieving them and expressed in an  objective, quantifiable, and measurable form, is also critical for the  success of OMB’s new approach. In addition, a governance structure that  provides clear roles and responsibilities of key stakeholders, such as the  Financial Systems Advisory Board and FIT, is necessary to help ensure  that the stated goals are achieved. Further, detailed guidance and criteria  will be important for understanding how ongoing and future  modernization projects will be evaluated.  In developing its strategy, it is also important for OMB to clarify the need  to mitigate the risks involved with the new requirements for agencies to  revise project plans to shorter increments. These risks include agencies  adopting a schedule-driven approach rather than focusing on achieving  event-driven results consistent with agency needs. In addition, providing  guidance to agencies on incorporating relevant OMB Circular No. A-11  procedures would help to ensure that OMB efforts to review financial  system IT projects under its new approach do not result in improper  impoundments.
As part of OMB’s revisions to Circular No. A-127, several clarifications  would help provide agencies with direction to implement OMB’s new  approach, including (1) the requirements for using an SSP, (2) the new  process for developing and updating federal financial management system  requirements and standard business processes, and (3) the performance- based approach for determining FFMIA compliance.
We recognize that OMB is still in the process of fully implementing this  new approach and completing related guidance. However, addressing  these and other identified key issues and overcoming the historical  tendency for agencies to view their needs as unique and resist  standardization will depend on prompt and decisive action to develop an  effective governmentwide modernization strategy and related guidance.  We are not making any new recommendations in this report because of  the early implementation stage of OMB’s new approach; however, we will  continue to work with OMB to help ensure that it provides agency  management and other stakeholders with the guidance needed to bring  about meaningful improvements in financial management systems. Finally,  to ensure that taxpayers’ dollars are used effectively and efficiently,  continued congressional oversight will be crucial for transforming federal  financial management systems to better meet federal government needs.
section_title: Agency Comments and Our Evaluation
paragraphs: We requested comments on a draft of this report from the Acting Director  of OMB or his designee. On August 31, 2010, the OMB Controller provided  oral comments on the draft report, including technical comments, which  we incorporated as appropriate. Overall, the Controller was concerned  that it was too early for GAO to draw conclusions on the change in policy  that was published in OMB Memorandum M-10-26 issued on June 28, 2010,  and that the report needed to better reflect the new approach as being a  work in progress in the beginning stages of implementation. To help  address OMB’s concern, we included additional references to the early  implementation stage of OMB’s new approach. The Controller also stated  that the questions raised in the report were good for framing the issues,  and that some of them were in the process of being addressed. For  example, he stated that the planned revisions to OMB Circular No. A-127  will address issues raised on systems requirements and the process for  certifying software. We have updated the report accordingly. The  Controller also stated that the members of the new Financial Systems  Advisory Board adopted a charter dated August 1, 2010, which provides  additional detail and specificity on the role and responsibilities of the  Board members. We were provided the charter on September 2, 2010, and  will evaluate it as part of our future work. We continue to believe that the  questions and issues raised in the report need to be addressed by OMB in  order to reduce risks and help ensure successful outcomes as it moves  forward with its new approach and develops additional guidance.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Ranking Member,  Subcommittee on Federal Financial Management, Government  Information, Federal Services, and International Security, Senate  Committee on Homeland Security and Governmental Affairs; the  Chairman and Ranking Member, Subcommittee on Government  Management, Organization, and Procurement, House Committee on  Oversight and Government Reform; and the Acting Director of OMB. The  report also will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  Kay Daly, Director, Financial Management and Assurance, who may be  reached at (202) 512-9095 or dalykl@gao.gov, or Naba Barkakati, Chief  Technologist, Applied Research and Methods, who may be reached at  (202) 512-2700 or barkakatin@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page   of this report. GAO staff who made major contributions to this report are  listed in appendix VI.
section_title: Appendix I: Scope and Methodology
paragraphs: To address our objectives, we surveyed chief financial officers (CFO), or  their designees, at the 24 CFO Act agencies. We asked each agency to  identify the core financial systems that were fully deployed in the agency  as of September 30, 2009, and any that the agency planned to fully deploy  after that date. Through the use of e-mailed, self-administered  questionnaires, we collected descriptive information on modernization  and migration-related activities about each core financial system, as well  as overall agency activities and perspectives regarding financial  management line of business (FMLOB) migration efforts. We designed and  tested these questionnaires in consultation with subject matter experts at  GAO and the Financial Systems Integration Office (FSIO), GAO survey  research methodologists, and selected agency officials. Data collection  took place from November 2009 to April 2010. All 24 agencies responded  to the survey request and returned questionnaires on 46 currently  deployed systems and 20 planned systems that they had identified, as  shown in appendix II, tables 5 and 6, respectively.
While all agencies returned questionnaires, and therefore our data are not  subject to sampling or overall questionnaire nonresponse error, the  practical difficulties of conducting any survey may introduce other errors  into our findings. In addition to questionnaire design activities discussed  above, to minimize errors of measurement, question-specific  nonresponses, and data processing errors, GAO analysts (1) pretested  draft questionnaires with two agency officials prior to conducting the  survey, (2) contacted respondents to follow up on answers that were  missing or required clarification, and (3) answered respondent questions  to resolve difficulties they had answering our questions during the survey.  In addition, we tested the accuracy of selected responses provided by  three agencies by comparing them to data we obtained from case studies.
To obtain more detailed information on steps taken to modernize core  financial systems and migrate related support services to external  providers, we performed case studies at the Department of Justice (DOJ),  Department of Agriculture (USDA), Federal Communications Commission  (FCC), and Office of Personnel Management (OPM). These agencies were  selected to provide a variety of perspectives from agencies actively  involved in core financial system modernization efforts. Specifically, the  criteria used to select agencies for the case studies included (1) different  software solutions, (2) a mix of large and small agencies, and (3) differing  experiences concerning the use of external providers to support their core  financial systems. To identify the use of different software solutions and  differing experiences concerning the use of external providers, we  reviewed an inventory of CFO Act agency and non-CFO Act agency core  financial systems published by FSIO as of December 2008 that identified  agencies’ software, versions, and providers, where applicable, that hosts  the systems, as well as selected 2008 agency performance and  accountability reports. To provide a mix of large and small agencies, we  selected at least one agency from each of three strata defined by gross  costs as reported in the 2008 Financial Report of the United States  Government. To help ensure an efficient use of audit resources, we did  not select agencies for which GAO had done work involving their financial  management systems for our case study work performed in this review.  We obtained and summarized information regarding these case study  agencies from documentation provided by the agencies, such as capital  asset plans and alternatives analyses. We also interviewed key agency  officials involved with the implementations, including CFOs and project  managers. We did not evaluate the effectiveness of the acquisition and  implementation processes used by the case study agencies. In addition, we  did not verify the accuracy of the data provided.
To identify the benefits of, and key challenges that agency officials report  as having an impact on, their efforts to modernize and migrate core  financial systems to external providers, we reviewed and analyzed survey  results from the 24 CFO Act agencies. In addition, we reviewed policies,  guidance, reports, and memorandums obtained from the Office of  Management and Budget (OMB), FSIO, the four selected case study  agencies, the four OMB-designated federal shared service providers (SSP),  two commercial vendors supporting migration activities at selected case  study agencies, and prior GAO reports. The four OMB-designated federal  SSPs were the Department of Transportation’s Enterprise Services Center,  the Department of the Interior’s National Business Center, the Department  of the Treasury’s Bureau of Public Debt’s Administrative Resource Center,  and the General Services Administration’s Federal Integrated Solutions  Center. We interviewed knowledgeable officials of these organizations, as  well as a co-chair of the Small Agency Council Finance Committee and  chairman of its Financial Systems Subcommittee (the CFO of the Equal  Employment Opportunity Commission and Deputy CFO of the Federal  Energy Regulatory Commission, respectively) and the team leader of the  CFO Council’s FSIO Oversight Transformation Team concerning key  factors that contribute to successful migrations and significant challenges  that may affect migration efforts at agencies and external providers.
We also interviewed key OMB officials, including the Controller and  Deputy Controller of the Office of Federal Financial Management, to  discuss these factors as well as governmentwide efforts toward migrating  core financial systems to external providers and OMB’s newly announced  policy and financial systems modernization approach (new approach). We  obtained and reviewed recent policies and guidance issued by OMB, such  as OMB Memorandum M-10-26 calling for an immediate review of  financial systems projects. We analyzed OMB’s new approach, in relation  to relevant laws, regulations, and guidance, including the Clinger-Cohen  Act, the CFO Act, the Federal Financial Management Improvement Act  of 1996 (FFMIA), OMB Circular No. A-127, OMB Circular No. A-130,  and standards set by the Institute of Electrical and Electronic Engineers.
We conducted this performance audit from June 2009 through September  2010 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
We requested comments on a draft of this report from the Acting Director  of OMB or his designee. We received oral and technical comments from  the OMB Controller, which are discussed in the Agency Comments and  Our Evaluation section and incorporated as appropriate.
section_title: Appendix II: Modernization and Migration of Core Financial Systems and Services to External Providers
paragraphs: Tables 5 and 6 summarize responses received from CFO Act agencies  concerning their core financial systems and efforts to migrate selected  core financial system support services to external providers. The agencies  completed separate questionnaires on each identified core financial  system and the status of activities related to migrating information  technology (IT) hosting, application management, and transaction  processing services supporting these systems to external providers as of  September 30, 2009. The status of agency migration activities and use of  external providers are categorized as follows:    Migrated - (provider). Agency has already migrated this service to a  federal SSP or commercial provider as indicated.
Planned - (provider). Agency has decided and planned to migrate this  service to a selected federal SSP or commercial provider as indicated.
Planned - (provider undetermined). Agency has decided to migrate this  service but has not yet selected a provider.
Undecided. Agency has not decided to migrate this service.    Not planned. Agency does not plan to migrate this service to an external  provider.
Table 5 summarizes the results of the 24 CFO Act agency responses  related to 46 current core financial systems, including 45 civilian systems  and 1 defense system, that agency officials identified as being fully  deployed as of September 30, 2009. Of these, 12 agencies reported that  they have already migrated, or plan to migrate, IT hosting or application  management core financial system support services to external providers  for 16 systems. Further, 4 agencies reported that they rely on external  providers for transaction processing services supporting 4 systems.
In addition to completing separate questionnaires concerning current core  financial systems that were fully deployed as of September 30, 2009,  agencies completed separate questionnaires for 20 core financial systems,  including 14 civilian and 6 defense systems, that they planned to fully  deploy after that date, as shown in table 6. The surveys were conducted  prior to the issuance of OMB’s new guidance. Accordingly, the impact, if  any, of the new policy on agencies’ plans to deploy new core financial  systems is not reflected in table 6. Some of these systems have already  been partially deployed at bureaus or other subagency components within  the agencies, and therefore some services may have already been migrated  to an external provider even though full deployment had not yet occurred  as of September 30, 2009. Of these systems, 10 agencies reported that they  have already migrated, or plan to migrate, IT hosting and application  management services supporting 10 systems; 4 agencies reported that they  either do not plan, or had not yet made a decision, to migrate both these  services supporting 4 systems; and 1 agency, the Department of Defense,  reported that it did not plan to migrate these services for 4 planned  systems and had migrated both services for 1 system and application  management services for 1 system. In addition, 4 agencies reported that  they plan to rely on external providers to provide transaction processing  services supporting 4 planned systems.
section_title: Appendix III: Case Studies of Agency Migration and Modernization Efforts
paragraphs: Additional information concerning selected federal agencies’ migration  and modernization efforts is presented in this appendix. The four case  study agencies are USDA, FCC, DOJ, and OPM. All four of these agencies  reported similar reasons for undertaking efforts to modernize their core  financial systems, including reliance on out-dated software that adversely  affected their ability to meet financial management challenges, and had a  goal of implementing a solution that will provide agencywide, streamlined,  real-time accounting and reporting capability. We did not evaluate the  effectiveness of the acquisition and implementation processes used by the  case study agencies or verify the data provided.
Planned software solution: SAP  IT Hosting: USDA National Finance Center (NFC)
USDA is taking steps to modernize its core financial systems using a  solution based on SAP commercial off-the-shelf (COTS) software that is  intended to provide agencywide online, real-time transaction capability  and access. USDA’s Financial Management Modernization Initiative  (FMMI) is intended to replace the Foundation Financial Information  System (FFIS) and consolidate and eliminate multiple systems currently  used in various USDA component agencies and staff offices. USDA  launched FMMI after identifying the need to upgrade department and  agency financial and administrative payment and program general ledger  systems.
In 2005, USDA began efforts to identify its new core financial system  needs and took steps to determine what software and services could be  provided by federal SSPs, private software vendors, and other commercial  providers. Figure 1 and table 7 summarize the key migration and  modernization activities used by USDA to identify and deploy a core  financial system solution.
FCC identified a need to modernize its core financial systems and selected  a Web-based version of Momentum COTS software to provide agencywide  online, real-time transaction capability and access. FCC’s planned new  core financial system is also intended to interface electronically with  common governmentwide software applications and to replace a number  of peripheral supporting software applications currently in use at FCC.  FCC’s Core Financial System Replacement Project is intended to replace  the Federal Financial System (FFS), which is an older, nonintegrated  system that relies on batch processing of transactions and is currently  hosted by the Department of the Interior’s National Business Center  (NBC). The new core financial system is planned to be used as the system  of record for all external reporting requirements, including financial  statement preparation access and processing.
In 2005, FCC began efforts to identify its core financial system needs and  took steps to determine what software and services could be provided by  federal SSPs, private software vendors, and other external providers.  Figure 2 and table 8 summarize the key modernization and migration  activities taken by FCC to identify and plan a core financial system  solution.
DOJ is configuring its Unified Financial Management System (UFMS) to  improve financial management and procurement operations across DOJ.  UFMS is planned to replace six core financial management systems and  multiple procurement systems currently operating across DOJ with an  integrated COTS solution. According to officials, UFMS should allow DOJ  to streamline and standardize business processes and procedures across  all of its components, providing secure, accurate, timely, and useful  financial data to financial and program managers across the department,  and produce component- and department-level financial statements. In  addition, the system is intended to assist DOJ by improving financial  management performance and to aid departmental components in  addressing the material weaknesses and nonconformances in internal  controls, accounting standards, and systems security identified by DOJ’s  Office of Inspector General. Finally, the system is intended to provide  procurement functionality to streamline business processes, provide  consolidated management information, and provide the capability to meet  all mandatory requirements of the Federal Acquisition Regulation and the  Justice Acquisition Regulations.
In 2003, DOJ began efforts to identify its new core financial system needs  and took steps to determine what software and services could be provided  by private software vendors and other external providers. Figure 3 and  table 9 summarize the key migration and modernization activities taken by  DOJ to identify and deploy a core financial system solution.
OPM is taking steps to modernize its core financial systems using a  solution based on Oracle COTS software that is intended to provide  agencywide online, real-time transaction capability and access. The  Consolidated Business Information System (CBIS) is intended to  consolidate and eliminate multiple systems currently used by OPM with  the initial deployment October 1, 2009, replacing the Government  Financial Information System (GFIS). GFIS included CGI Momentum,  which is used for salaries and expenses, and a revolving fund. OPM  deployed phase I, release 1 of CBIS to replace Momentum and, according  to officials, plans to launch phase II to incorporate trust fund accounting  are currently under review by OPM leadership. Under CBIS, OPM also  replaced its contract administration software, Procurement Desktop, with  the Compusearch PRISM solution during phase I, release 1.
In 2005, OPM began efforts to identify its core financial system needs and  took steps to determine what software and services could be provided by  federal SSPs, private software vendors, and other external providers.  Figure 4 and table 10 summarizes the key actions taken and challenges  encountered by OPM in identifying a core financial system solution.
section_title: Appendix IV: Key Characteristics of Selected External Providers
paragraphs: OMB designated four federal entities—(1) the National Business Center of  the Department of the Interior; (2) the Administrative Resource Center,  Bureau of Public Debt, of the Department of the Treasury; (3) the Federal  Integrated Solutions Center of the General Services Administration; and  (4) the Enterprise Services Center of the Department of Transportation— as SSPs for federal financial management. All four SSPs offer IT hosting,  application management, transaction processing, and system  implementation services or have a structure for providing all four of these  services. Although the SSPs offer the four basic services mentioned above,  the specific services provided may vary based on the requirements, size,  and complexity of the client agency. SSPs typically offer a range of the  following four basic services:    IT hosting services may include systems management and monitoring,  disaster recovery, help desk, network security compliance and controls,  and continuity of operations plans and testing.
Application management services may include system/software  administration, application configuration, application setup and security,  user access and maintenance, configuration management, and  coordination of application upgrades and fixes.
Transaction processing services may include account maintenance and  reconciliation, financial reporting, regulatory and managerial reporting,  standard general ledger reconciliation, payment processing, billings and  collections, accounts payable, accounts receivable, travel payments,  relocation payments, budgetary transactions, and fixed asset accounting.
System implementation services may include implementation and  integration support services, requirements analysis, system conversions,  project management, systems testing, change management, and training.
To help monitor and measure the performance of selected external  providers in connection with the financial management line of business  (FMLOB) services they provide, SSPs and agencies rely on service-level  agreements, which are binding agreements that define the specific level  and quality of the operational and maintenance services that an external  provider will provide to a customer agency and outline penalties and  incentives that may arise from not performing or exceeding the expected  service levels. The inclusion of appropriate and clearly defined  performance measures and metrics in service-level agreements is  important for ensuring the usefulness of this tool. OMB’s FMLOB  Migration Planning Guidance defines the four service categories and  related performance metrics. Although specific metrics included in  service-level agreements are negotiated and may vary, examples of  performance metrics related to the services described above include the  following:  (1) For IT hosting, system availability; average total response time for  system components; resolution time for critical, high, medium, and low  incidents; number of security incidents in the past year; and file recovery  time.  (2) For application management, average time to restore mission-critical  application functionality; unplanned downtime; percentage of on-time  upgrades; and average retrieval time for archived data.  (3) For transaction processing, invoice process cycle time; percentage of  financial transactions with errors; average business days to close the  books; and number of business days to report after closing books.  (4) For system implementation services, percentage of standard financial  management system requirements fulfilled; percentage of satisfactory  postimplementation survey responses; and reduction in help desk volume.
SSPs are also required to operate and maintain a COTS software package  in compliance with FSIO core financial system requirements. As shown in  table 11, three of the four SSPs use the Oracle software package, while  two of the four use a Momentum software package. One SSP offers SAP  software. In addition to the software offered by each SSP, table 11 also  provides an overview of key characteristics of the four OMB-designated  federal SSPs including detailed information regarding the number of full- time equivalent staff dedicated to providing financial management services  and the clients they serve. The selected characteristics provide context for  the financial management systems-related operations of the four federal  SSPs.
section_title: Appendix V: Reported Benefits and Challenges Related to Agency Migration and Modernization Efforts
paragraphs: This appendix includes additional details on the key benefits and  challenges of agencies migrating their core financial systems to external  providers for IT hosting, application management, and transaction  processing. The potential benefits and challenges include those reported  by the CFO Act agencies in response to our survey. The surveys were  conducted prior to the issuance of OMB’s new guidance. Accordingly, the  effect, if any, of the new policy is not reflected in agencies’ responses.  Non-CFO Act agencies’ use of external providers also highlights potential  benefits and challenges. While external providers cited efforts to address  agency concerns, they also highlighted their own concerns and challenges  with agency migrations. We also noted other migration challenges related  to OMB’s guidance on competitions.
subsections: section_title: Potential Benefits of Agency Migrations Reported by CFO Act Agencies
paragraphs: Based on survey responses concerning the potential advantages and  disadvantages of migrating core financial system support services, 16 of  the 24 (67 percent) CFO Act agencies believe that the benefits of migrating  IT hosting greatly or somewhat outweighed their concerns, while 14 of 24  (58 percent) reported similar perceptions concerning the benefits of  migrating application management services to external providers. In  comparison, as shown in table 12, the responses indicated the perception  that potential disadvantages outweigh any potential advantages of  migrating transaction processing services to an external provider for 10 of  the 24 (42 percent) CFO Act agencies.
According to CFO Act agency responses to our survey, some of the  potential benefits of migrating the IT hosting, application management,  and transaction processing services for agencies’ core financial systems to  external providers include the following:    Potential cost savings through shared resources. For example, the  Nuclear Regulatory Commission cited cost reductions in equipment  purchase and maintenance costs, as well as the number of staff needed to  maintain the application and process transactions.
Allowing agency to focus on mission. For example, OPM stated that  migrating its financial management system to an IT hosting provider  enables OPM to extricate itself from the business of managing financial  systems, transfers some of the risk associated with implementing and  maintaining the system, and allows the CFO organization to concentrate  on its goal of providing strategic direction based on financial data.
Greater efficiency and reliability through experienced staff. For  example, the Department of Transportation stated in its survey response  that benefits include having a provider that has experience with the  specific equipment, operations, and maintenance required by the hosted  application.
section_title: Reported Potential Benefits on the Use of Federal SSPs by Non- CFO Act Agencies
paragraphs: According to Small Agency Council officials, small agencies are more  likely to migrate to external providers because they do not have sufficient  resources to support infrastructures required to operate and maintain core  financial systems. For example, according to one federal SSP, many of its  clients consist of small commissions, such as the Election Assistance  Commission, that rely on the “end-to-end” services the SSP provides.  Further, according to officials at the four federal SSPs, their efforts toward  acquiring additional clients are primarily focused on small to midsized  agencies that may lack sufficient resources or expertise to meet their core  financial system needs. The following summarizes the key reported  benefits for non-CFO Act agencies.
Potential cost savings through shared resources. Based on  information provided by SSP officials, their clients share the same  instance of core financial software hosted and maintained by SSPs with  eight or more other clients, on average. Federal SSP officials stated that  the use of shared instances and other tools, such as standard interfaces  that facilitate the exchange of data between core financial systems and  other systems, enables agencies to realize significant cost savings by  spreading IT hosting, maintenance, and other related costs among multiple  clients.
Greater efficiency and reliability. According to FCC officials, FCC is  currently modernizing its core financial system and is migrating to a  commercial provider to take advantage of the provider’s expertise in  acquiring and maintaining the latest technology to meet FCC’s needs.  Further, since federal SSPs process transactions for multiple agencies,  they are able to devote more resources toward processing complex  transactions than smaller agencies that may not individually be required to  handle such transactions on a regular basis. For example, according to one  SSP, although many agencies do not process a large number of  transactions involving employees’ permanent changes in duty stations, the  SSP maintains the expertise and capability to efficiently process these  complex transactions on a regular basis because of the volume it is  required to handle on behalf of all its clients.
Enhanced compliance with federal standards. External providers are  working to incorporate changes in software to facilitate agencies’ efforts  to comply with new standards and requirements, such as the Common  Governmentwide Accounting Classification (CGAC) and other recently  issued standard business processes. According to a federal SSP official,  having a limited number of providers incorporate these changes into a  common solution shared by multiple agencies, rather than each agency  spending valuable resources to accomplish the same objective on its own,  represents a significant advantage for the agencies relying on the shared  solutions the SSP provides.
section_title: Reported Challenges Related to Agency Modernization and Migration Efforts
paragraphs: CFO Act agencies highlighted system implementation disciplined  processes, along with reengineering their business processes, among the  greatest modernization challenges they face. Additional information on  these and other reported key challenges affecting CFO Act agency  modernization and migration efforts can be found in table 13.
The following summarizes key examples of CFO Act agency survey and  case study results related to challenges associated with migrating IT  hosting, application management, and transaction processing to external  providers.
Department of Health and Human Services officials expressed concerns  about the loss of control and risks associated with allowing another entity  to manage or host the infrastructure on which an agency’s critical data  reside, which could become impaired or compromised.
Agencies cited concerns with the loss of flexibility associated with using  the same setup and configurations across agencies in order to achieve  efficiencies and cost savings governmentwide. In addition, agencies stated  that they were reluctant to forgo their established business processes,  noting that they would lose the benefits associated with their unique  business processes and the technical expertise of internal staff who  support and use them. For example, the Department of Energy cited  concerns with losing agency capabilities and subject matter expertise and  becoming totally reliant on the service provider.
Case study agency officials expressed concerns that although COTS  products help enable agencies to use common platforms to modernize  their core financial systems, the products need additional enhancements  to help meet common agency needs. For example, these officials identified  a need for (1) enhancements that effectively address new governmentwide  CGAC and FSIO standard business processes and agency budgetary  reporting needs and (2) common interfaces that facilitate the exchange of  financial data between agency core financial systems and governmentwide  systems, such as the FedDebt system. Further, recognizing that  unreconciled intragovernmental information continues to impede the  preparation of the federal government financial statements each year,  they stated that intragovernmental transaction processing should be  further clarified.
Case study agency officials stated that their agencies each worked  individually with selected COTS vendors to produce enhanced solutions to  meet their needs. For example, the case study agencies noted that they  have had to develop interfaces to existing solutions such as payroll, travel,  reporting, and FedDebt that should already be part of a standard  configuration. Agency officials were unable to specify the portions of their  modernization costs that are specifically attributable to meeting software  and configuration needs they have in common with other agencies.
section_title: Reported Challenges Related to OMB’s Competition Framework
paragraphs: Although external providers acknowledged agency migration concerns  and stated that they were taking steps to address them, they cited  additional challenges affecting their migration-related efforts. For  example, external provider officials stated that overcoming agencies’  resistance to adapting their business processes to those used by external  providers is a significant challenge. Further, according to one SSP official,  although OMB had a goal of migrating agencies to a limited number of  stable and high-performing providers, it lacked a clear mechanism for  enforcing agencies, especially large agencies, migrate to an external  provider in a manner consistent with the goals of the FMLOB initiative.  Specifically, based on survey responses, CFO Act agencies reported that  they were relying, or planning to rely, on a total of 6 different external  providers for IT hosting and application management services supporting  their planned systems and a total of 12 different providers to provide these  services for their current systems.
We also noted other challenges related to OMB’s Competition Framework  that affect agency and external provider migration efforts. OMB’s  Competition Framework, as well as revisions made to OMB Circular No.  A-127, require agencies to conduct competitions among external providers  to help evaluate different options available for meeting their needs. The  following is a summary of these reported challenges.
According to one federal SSP, some agency solicitations for shared  services consist of lengthy, detailed requirements and other information  that can sometimes result in unnecessarily expensive and time-consuming  efforts to review and provide required responses. Federal SSP officials  noted that the federal government may spend a significant amount of  federal funds on demonstrations, especially in a situation where all four  SSPs respond to a request for a demonstration from a single agency.  Moreover, officials at SSPs also expressed concerns about the significant  challenges they face in competing with commercial vendors and acquiring  additional clients because of the limited resources they can devote to such  activities.
Federal SSP officials stated that full cost recovery requirements associated  with being a franchise fund or working capital fund place federal SSPs at  an inherent disadvantage when competing against commercial vendors  under OMB’s Competition Framework. According to federal SSP officials,  they may not bid on agency solicitations that would involve significant  start-up costs to meet an agency’s unique needs if doing so would not also  benefit other clients they serve that would also bear a portion of these  costs. These officials also stated that commercial vendors have more  flexibility to price their bids aggressively in early years to acquire  additional business and rely on efforts to recoup their costs in subsequent  years. External providers also reported seeing an increase in agencies’  desire to use firm-fixed price contracts and include performance  incentives and disincentives in service-level agreements which, according  to SSP officials, are difficult for them to accommodate because of full cost  recovery requirements.
According to DOJ officials, DOJ did not conduct a competition because  the department determined that federal SSPs could not accommodate its  capacity, security requirements, and unique accounting needs based on  limited information received about SSP capabilities and costs during  preliminary planning discussions related to its financial management  system modernization effort. However, DOJ officials acknowledged that  they did not receive sufficient information to fully evaluate the capabilities  of the federal SSPs and stated that they were not sure whether all aspects  of their preliminary determination would hold true if more research were  conducted and SSP capabilities had improved.
section_title: Appendix VI: GAO Contacts and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, individuals who made major  contributions to this report were Chris Martin, Senior-Level Technologist;  Michael LaForge, Assistant Director; Jehan Abdel-Gawad; Lauren  Catchpole; Francine DelVecchio; F. Abe Dymond; Latasha Freeman;  Wilfred Holloway; Jim Kernen; Theresa Patrizio; Carl Ramirez; Jerome  Sandau; Pamela Valentine; and Carolyn Voltz.