Congress questions financial management consolidation

OMB called to answer for lack of guidance on shared services initiative

In the two years since the Office of Management and Budget announced an initiative to consolidate agencies’ financial management systems, there has been little indication of progress. Now, Congress is questioning the risks involved in continuing the project — and whether completion is feasible.

As called for in the President’s Management Agenda, OMB intends for many financial management operations to be concentrated within shared services centers, where one service provider handles back-office functions for several agencies to save money.

The plan is referred to as the Financial Management Line of Business, one of six federal lines of business. The financial management shared service provider can be a federal agency — referred to as a Center of Excellence — or a private company. OMB wants any department planning a major change in its financial management system to consider using one of the agency COEs or a commercial provider, instead of conducting operations internally.

But last week, lawmakers held a hearing with OMB officials to voice their concerns about the lack of clear guidance on financial management shared services. Rep. Todd Platts (R-Pa.), chairman of the House Government Reform Committee’s Government Management, Finance and Accountability Subcommittee, expressed his confusion about the murky guidance governing which agencies must eventually use or become a COE.

“Is it mandatory that every agency will become a COE or migrate to one — or just do an analysis” to decide? he asked. “At some point you have to give them a clear answer.”

OMB officials at the hearing acknowledged that they might have failed to communicate the rules precisely. Agencies are required to move the information technology functions of their financial management systems to a shared services center or become an IT shared services center during the course of upgrading the systems, but they are not required to do that with other, non-IT aspects of financial management, they testified.

Platts said that the IT shared services requirement — which covers the housing of servers and application hosting — will demand additional strategizing and planning that some agencies may be unprepared to undertake. OMB expects agencies to transition their financial IT operations within 10 years.

At the hearing, OMB officials repeatedly said financial management consolidation will take time and patience.

“This vision is a very long-term vision and is not one that will be achieved overnight,” said Linda Combs, controller of OMB’s Federal Financial Management Office. “We may have to go across a mountain. We may have to look at some stoplights across the way.”

The IT shared services requirement also means that agencies must now consider competitive sourcing if they are going to migrate to a COE for hosting. Competitive sourcing, which is governed by OMB Circular A-76, typically pits a private-sector vendor against a team of federal employees in a competition to determine who can perform work most effectively and efficiently.

However, governmentwide competitive migrations present another challenge. While agencies will have to work closely with the private sector, there are no recommendations on how to ensure good relationships.

OMB expects to issue guidance by the end of the month on how to broker service-level agreements between agencies and commercial companies, Combs said. OMB is still grappling with how to resolve the

situation where a commercial shared services provider does not meet performance standards.

COE migration poses a riskMigrating to a federal Center of Excellence is a risky undertaking. In a recent hearing held by the House Government Reform Committee’s Government Management, Finance and Accountability Subcommittee, Rep. Todd Platts (R-Pa.) asked Office of Management and Budget officials whether an agency can get out of the agreement if the agency providing information technology services loses its “clean audit” standing, as the General Services Administration has done.

A clean audit opinion means that an agency has passed an audit of its financial records. Of the four centers of excellence in the government, only one — the Bureau of the Public Debt’s Administrative Resource Center — currently has a clean audit opinion. “I think it’s important to address, what does that [agreement] mean long term? If you are a customer agency, do you have the right to go somewhere else that does have the clean opinion?” asked Platts, the subcommittee’s chairman. “I think those are the questions you need to work out upfront.” Aware of the potential dangers of long-term contracts, OMB officials said there are no clear-cut answers. Instead, they will work with affected agencies to mitigate problems as they arise.

— Aliya Sternstein

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