Financially Sound

The push for accountability, alignment and performance management is driving demand for software that goes beyond accounting and payroll

More driven by federal policy than technology, recent developments in financial software for government are closely tracking high-level directives that emphasize lines of business, strategic plans and project portfolios instead of next week’s payroll or overdue payables.

And despite the fact the Office of Budget and Management is steering agencies toward four Centers of Excellence as shared financial service providers under the Financial Management Line of Business Consolidation initiative, plenty of organizations are upgrading their core financial platforms.

The trend recently is to look at agency financials from the highest levels of abstraction, using software add-ons that help align expenditures with business missions. In the federal government, motivation comes from the various budgeting and performance mandates of the President’s Management Agenda.

Vendors report more interest in adding performance management and business analytics, and are responding with new modules. “We are seeing an increased understanding of how important it is to align core operational areas including case management and program management processes with financial management and performance reporting,” said Andy Malay, vice president of the federal civilian practice at SAP America Inc., a leading enterprise resource planning vendor.

“It’s basic accountability—being good stewards of the money,” said Wayne Bobby, a vice president at Oracle Corp. “It allows you, the agency, to take a hard look at what you do and how you do it.”

With as many as 13 federal agencies in the process of procuring core financial management systems, according to a survey by the Federal Systems Integration Office, it’s critical that IT managers understand how new software capabilities will help them hew to their missions. (Earlier this year the Joint Financial Management Improvement Program, which was responsible for certifying financial software for government, became FSIO, reporting to the CFO Council.)

Changes afoot

The market for core financial applications has changed over the last couple of years. SAP and Oracle dominate the federal market. SAP’s long experience in ERP has made it a favorite of logistics-intensive agencies such as the Defense Department.

Oracle’s presence in federal financials and development of applications that run on its database is tinged somewhat by recent uncertainty over its strategic direction. When it acquired PeopleSoft Inc. earlier this year (PeopleSoft itself had recently acquired ERP vendor J.D. Edwards), Oracle inherited three product lines with a strong user base in state and local government. Oracle officials have said it will integrate the best features of all four lines, including PeopleSoft’s flagship human resources and payroll ERP systems, in a new suite dubbed Project Fusion. The new suite isn’t expected until 2007 or 2008, leaving some groups wondering how to proceed.

“The plan is to provide a migration path to whatever these apps are going to be,” said Lee Geishecker, research vice president at Gartner Inc. of Stamford, Conn. “We’re advising people to put their plan in place within three years. There’s no need for anyone to panic.”

Despite possible confusion over Oracle’s plans, agencies are looking to the company for new financial systems. According to an August FSIO inventory of existing and planned financial systems, several agencies are migrating to Oracle, including the Energy, Health and Human Services, Labor and Veterans Affairs departments.

Meanwhile American Management Systems Inc., long a mainstay of the federal market, was acquired in 2004 by the Canadian CGI Group Inc. (CACI International Inc. bought AMS’ Defense Department-related business.) CGI-AMS continues to offer the AMS Momentum line of financial software. Momentum is currently running at such agencies as the State Department, General Services Administration and Office of Personnel Management, according to FSIO.

That said, the company’s Federal Financial System software, in use at agencies including the Agriculture and Interior departments, has been phased out, and its JFMIP certification was allowed to lapse in 2003. The company’s newer AMS Advantage Web-based suite has been adopted by several state and local agencies.

Lawson Software, and to a lesser degree Microsoft Business Solutions with its Great Plains and Solomon lines, also focus primarily on state and local users. Lawson said it also has pockets of customers in both houses of Congress and three-letter agencies it can’t name.

Performance Anxiety

What all these financial software companies are trying to do now is add a layer of intelligence to their applications. Business analytics usually requires a data warehouse that gathers financial information from disparate systems in one place, where it can be more easily searched and statistically analyzed. Thus, ERP vendors are lately emphasizing their existing database technology or adding new support for third-party data warehouses and related tools. The idea is to provide users a more unified view of all an agency’s resources, then apply analytical tools that help them make better decisions.

“It’s integrating the financial information with the performance information, along with other cost information, such as asset or labor costs, and putting that in a data warehouse,” said Andrew McLauchlin, CGI-AMS’ consulting director. Chief financial officers are no longer the intended audience. “It’s really the people in the mission areas who need to get the most out of their money,” he added.

According to McLauchlin, CGI-AMS’ integration work helped the Environmental Protection Agency earn a green rating on PMA scorecards.

SAP’s analytics effort centers around software called Business Warehouse, according to Geishecker.

“With these new capabilities, government organizations will be able to leverage robust analytics for budget planning and simulation to analyze, simulate and streamline the budget preparation process,” Malay said.

Oracle is also responding. “I think Oracle’s got a very good vision for performance management, but they were late to market on some critical pieces,” said Geishecker.

Vendors also report increased interest in using financial packages for asset management. Lawson’s acquisition this year of Swedish ERP vendor Intentia International AB is viewed as evidence of the trend’s importance. Intentia’s Enterprise Management applications track a variety of assets and integrate with the company’s supply chain management and other software. Intentia has also worked on integrating radio frequency identification into its products.

Moreover, GASB 42, shorthand for Government Accounting Standards Board Statement 42, is emerging as an important new standard. It specifies how to handle “impaired,” or depreciated, physical assets and could actually help state and local agencies, with their asset-rich public works and transportation departments, to save money. “If they can show that they have a system of maintenance for these assets, they can be a little more liberal with how they value those assets,” said Ken Munson, a public sector director at Lawson. “There’s a huge push now in a lot of organizations to take a hard look at a more systematic approach.”

Interestingly, more government agencies also are requesting software that supports the Sarbanes-Oxley Act of 2002, even though its accountability rules were meant to apply only to corporations. Geishecker said she knows at least six federal agencies that plan to adopt the act’s guidance. “They don’t have the luxury of a 28-day close [like corporations],” she said. “They say, ‘We just need at one point in time to know how well we’re doing.’ ”

Results, results

In light of the evolving market for financial applications, experts say IT purchasers should emphasize their underlying business processes more than technology when buying financial software.

“The first thing we did was say, ‘This is not an IT project,’ ” said Jack Pond, chief information officer of Montgomery County, Pa., which installed Lawson software in place of legacy financial systems early this year. “These will only succeed when and if they are led by the business leaders,” he said, adding that a steering committee of users and executives was even allowed to choose the exact IBM consultants who would perform the installation.

Pond points to ample anecdotal evidence of the new system’s worth, including a case of overtime fraud caught when users noticed that certain numbers didn’t reconcile. “We have a level of accountability and control that we’ve never had before,” he said.

FSIO, just as JFMIP before it, tests core financial platforms for conformance to government standards, specifically Office of Management and Budget Circular A-127, which requires agencies to build and maintain a single, integrated financial management system. The document also says agencies must choose commercial programs when upgrading financials.

In the end, financial application upgrades fall into two categories, as viewed by FSIO/JFMIP: core and feeder applications. In addition to the many agencies looking into new core systems, at least 22 are looking to add feeder modules to their existing platforms to perform functions such as grants and property management.

Clearly, with the addition of analytics and compliance components, what defines a core application is expanding. So are agencies’ financial responsibilities.

David Essex is a freelance technology writer based in Antrim, N.H.

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