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. 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. 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. 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. 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.