Each year, the federal government spends billions of dollars implementing, operating, and modernizing agency financial management systems. Financial systems are vital to the effective management and oversight of public funds, because the information they provide is used by government officials to make decisions about agency programs and operations. For example, federal managers use financial data to monitor contract costs, measure program performance, and identify improper payments. When agency financial systems provide inaccurate or incomplete data, the government might be less able to operate at maximum efficiency, and the risk of waste, fraud, and abuse arguably increases. For example, GAO has reported that financial management deficiencies at the Department of Defense (DOD) have resulted in hundreds of millions of dollars in over- and underpayments to contractors and contributed to DOD's high rate of travel card delinquency. Significant financial management weaknesses can be found throughout the government, and according to GAO most agency financial systems are unable to routinely produce reliable, useful, and timely information. In order to improve the quality of financial data available to government officials, Congress has funded a number of financial management improvement initiatives. Such initiatives, by their nature, are often complex and entail a degree of risk. The National Aeronautics and Space Administration (NASA), for example, spent $180 million on two failed efforts to modernize its financial systems, and NASA's third such attempt, currently underway, will cost an additional $983 million. Similarly, problems with inaccurate data led the Department of Veterans Affairs to halt deployment of its new financial system after an investment of $250 million. One recent effort to improve agency financial systems, the Financial Management Line of Business (FMLOB) initiative, was launched by the Office of Management and Budget (OMB) in 2004. Based on the recommendations of an interagency task force, the FMLOB proposed that the government move to a "shared services" model of financial management, whereby agencies would transfer their core financial system functions—such as accounting, payments, and reporting—to government-wide shared service providers (SSPs). Outsourcing administrative and financial operations to third-party service providers is a common practice in the private sector, and it has already been employed by the federal government in some instances. The National Finance Center, for example, a component of the U.S. Department of Agriculture (USDA), currently provides payroll and personnel services for 120 federal organizations across the three branches of government. According to OMB, the use of SSPs will enhance the timeliness and accuracy of financial information while reducing the costs associated with operating and modernizing agency financial systems. Several departments and agencies have already begun making plans to migrate core functions to SSPs, including the Department of Labor, the Department of Commerce, USDA, and the Environmental Protection Agency. OMB has estimated that remaining agencies will follow suit within the next seven or eight years. While the objective of moving to a shared services environment is widely supported in principle, a range of public and private sector observers has expressed concern that the initiative is moving too fast. Critics say that the capabilities of some SSPs have not been adequately demonstrated, that internal control problems should be addressed prior to migrating core financial systems, and agencies need time to prepare their personnel and build internal support for the initiative. Implementation should be delayed, critics argue, until these and other risk factors have been mitigated. The FMLOB has implications for Congress, in terms of both its appropriations and oversight responsibilities. Large-scale financial modernization efforts have the potential to generate more timely and accurate financial data, which are needed for effective oversight of agency programs and operations. As previously noted, however, modernization initiatives require substantial funding and often fail to produce the intended results. The House Subcommittee on Government Management, Finance, and Accountability, has held several hearings on the initiative, although no bills have been introduced. This report provides background information on the FMLOB's origins and goals, and presents the arguments of supporters and critics of the initiative. Finally, it discusses the project's implementation status. In the spring of 2004, OMB launched a series of interagency task forces to determine if services commonly found in numerous agencies, called lines of business, might be provided in a more efficient manner. The financial management task force determined that "significant savings" over a 10-year period were possible if the government consolidated agency financial systems and standardized the related business processes. In order to realize these savings, the task force recommended that the government establish centralized shared service providers (SSPs) to which agencies would transfer their core financial management functions, rather than invest in modernizing existing agency systems. OMB concurred with the recommendation and worked with the task force to develop an FMLOB business case that outlined the shared services concept and its expected benefits. The business case called for consolidating agency financial systems into a smaller number of government-wide SSPs, each of which could provide financial management services to multiple agencies. According to the business case, transferring agency financial management functions to SSPs would enable to government to: improve its leverage in negotiations with suppliers; reduce future agency development, modernization, and enhancement expenditures; reduce future agency operation and maintenance expenditures; retire agency "stovepiped" core financial systems; re-deploy current agency financial management personnel; improve agency program decision making due to enhanced financial reporting; and leverage best practices for investment management, procurement, budgeting, and real estate management. The business case explained that agencies may select as their service provider either a private sector contractor or one of a limited number of government agencies designated by OMB to be federal SSPs. In order to identify potential federal SSPs, OMB asked agencies with the skills, capabilities, and interest to function as government-wide financial management service providers to include business cases for doing so as part of their FY2006 budget submissions. OMB then evaluated the business cases using a "due diligence checklist" that assessed agencies' past performance, current capabilities, skill to operate a customer-focused organization, and adherence to federal policy and regulations. Based on these evaluations, OMB designated four agencies as federal SSPs: the Bureau of the Public Debt's Administrative Resource Center, the Department of the Interior's National Business Center, the Department of Transportation's Enterprise Service Center, and the General Service Administration's External Services Division. Only these agencies are permitted to compete with private firms for FMLOB contracts. In order to explain the initiative to federal agencies and help them prepare for the transition to a shared services environment, OMB released Version 1 of its Migration Planning Guidance in September 2006. Key provisions of the guidance are outlined below. The stated objective of the FMLOB is to improve the cost, quality, and performance of government financial management systems by utilizing shared service providers and implementing other government-wide reforms. Specific goals of the initiative include providing timely and accurate data for decision making; strengthening internal controls; providing a competitive alternative for agencies to acquire, develop, implement, and operate financial systems through shared services; standardizing business systems, processes, and data elements; and providing seamless data exchange between agencies. With "limited exception," the guidance requires that when an agency identifies a need to upgrade or modernize its core financial system, it must, at that time, either select an SSP or become designated as a federal SSP itself. OMB maintains that this policy enables the government to avoid investments on "in-house" agency systems that would eventually be replaced by more cost effective shared service providers. An agency may continue to operate its in-house system without being designated as a federal SSP only if it can demonstrate that doing so is a better value and lower risk alternative. The guidance provides no estimated timeline for migration, but OMB has told GAO that it expects most federal agencies to move to SSPs "within the next seven to eight years." The guidance stated that all agencies are required to conduct public-private competitions when selecting an SSP, unless OMB grants a deviation. Additionally, when public-private competitions involve work performed by more than 10 full-time employees, those competitions are required to follow OMB Circular A-76, which establishes government-wide guidelines for opening federal jobs to private bids. The guidance makes A-76 optional for competitions involving work performed by 10 or fewer full-time agency employees. The FMLOB includes an effort to establish standardized business practices that all agencies would eventually adopt. For example, it is developing standard processes for core financial management functions, such as payments and reporting, which would make it easier for agencies to share data. The FMLOB has also developed a standard government accounting code, which was released in July 2007. In a January 2008 memorandum, OMB stated that agencies are required to adopt the new business standards when they migrate to SSPs. OMB also argues that the FMLOB will increase the number of agencies in compliance with the Federal Financial Management Improvement Act (FFMIA) of 1996. FFMIA establishes standards for federal agency financial systems, with the objective of ensuring they generate reliable, useful, and timely information for decision makers. In FY2009, 15 of 24 agencies covered by the act were in substantial compliance. OMB has stated that by moving some agencies to SSPs and standardizing financial processes across the government, the FMLOB will help agencies select and implement FFMIA-compliant financial systems. Initial support for the FMLOB, while widespread, was qualified by concerns over the pace of implementation. By the time OMB released the Migration Planning Guidance in September 2006, the Department of Labor had awarded a contract to a private firm for hosting components of its financial system, the Department of Commerce had announced plans to begin consolidating its financial management platforms, the Office of Personnel Management had selected the Bureau of Public Debt as its SSP, and the Environmental Protection Agency had begun evaluating proposals for software, integration, and hosting services.