Exclusive: OMB to propose major changes to financial management systems

Draft memo obtained by Federal News Radio calls for stopping new and ongoing modernization and development programs until OMB can review them. OMB also would do...

By Jason Miller
Executive Editor
Federal News Radio

The Office of Management and Budget is considering major changes to the way agencies develop and implement financial management systems.

In a draft memo obtained by Federal News Radio, OMB director Peter Orszag would halt all new financial management system modernization projects worth at least $10 million, and all existing task orders for ongoing development efforts worth more than $500,000. Existing contracts, however, would not be affected by the freeze, unless the agency is awarding a new task order under a current deal.

The draft memo calls for OMB to approve agency implementation plans. Additionally, OMB would use the apportionment process to give agencies money each quarter to pay for the next phase of the system development instead of letting an agency have the entire amount at once.

“[T] his memorandum initiates a re-examination of these expensive and lengthy investments in financial management solutions in favor of shorter-term, lower-cost, and easier-to-manage solutions,” Orszag writes in the draft memo. “By dividing projects into smaller segments that deliver the most critical functionality more quickly, federal agencies will achieve greater functionality sooner, better align projects to their organization’s capacity to manage change and reduce risk and cost. This memorandum also delineates related policy changes that will reduce project complexity by encouraging shared services where cost effective, initiating a performance-based approach for compliance with financial system requirements and streamlining the process for certifying financial management software.”

This memo would be the latest step in how the administration is reshaping federal financial management

In March, OMB announced it was shutting down the Financial Systems Integration Office, and less than a month later announced a new Office of Financial Innovation and Transformation, (OFIT) in the Treasury Department.

OMB also is pushing agencies to use governmentwide systems for intragovernmental transactions and to process vendor invoices.

An OMB spokeswoman says OMB doesn’t comment on draft policy.

In the draft memo, OMB would require agencies to break projects into segments that last no longer than 90 days, and the entire project should go on for no more than 24 months. Agencies should focus on their most critical needs first in this segmented approach, the memo states.

“I view the memo as the first step in the beginning of a reframing of the approach to procurement of federal financial management systems,” says Ira Goldstein, a former chief operating officer at the Government Accountability Office, and now director at Deloitte Consulting. “The draft puts a stake in the sand at a particular point and says we are moving toward more bite-sized incremental approaches to financial management systems. We will focus more on short term functionality and less on long term global enterprise transformation.”

Agencies must submit to OMB 60 days after the memo is finalized revised project plans to outline strategies for reducing costs, shortening the timeline and reduce risks.

“Proven best practices in this area include identifying up-front a series of milestones, warning flags, and stop points over the course of the segment lifecycle in which, if deemed necessary, the project will be suspended and returned to planning,” the memo states. “Additionally, clear deliverables are monitored closely and any delays in deliverables automatically results in a more in-depth review of a project. Finally, mechanisms for review of project status by senior management are built into a project plan. Revised agency projects plans should integrate these best practices into their oversight processes.”

David Lucas, chief strategy officer at GCE Federal, a financial management services provider, says the short time frames OMB seems to want to hold agencies to is promoting the use of commercial systems.

“There is no doubt there have been a lot of failures for many years in this space and the failures come from several different pieces of a program, more often than not, it’s in this business model where agencies and vendors are trying to configure things from scratch,” he says. “One of the things you will see as it becomes more and more support for a pre-built solution and service providers to emerge, you will see less and less problems with this part of the implementation, getting the software up and running.”

OMB then would approve those revised agency plans within 30 days after submission. The memo also would call for OMB and a new Financial Systems Advisory Board–made up of the agency chief financial officers and chief information officers–to review projects and make recommendations to OMB.

Goldstein says he applauds the creation of this the advisory board.

“It doesn’t position OMB as the ultimate decision maker on what will be the right, new innovative approach,” he says. “It creates a board of CFOs and CIOs ultimately the people who have to procure and manage new financial management systems. I believe that could turn out to be in the short term and in the longer term a major step forward in terms of the user community being able to frame how this kind of quarterly or periodic review, how this type of approval time frame should work in a way that allows for constructive management in a short term incremental approach.”

OMB also is removing the mandate for agencies to move to shared service providers. The memo encourages the use of these common providers, but only when it makes most sense.

“OMB expects the requirements to re-scope agency modernization projects contained herein will enable greater adoption of shared service arrangements with lower risk and greater cost impacts,” the draft memo states. “Further, financial management shared service efforts will now focus on the higher impact area of transaction processing. OMB, Department of the Treasury and the CFO Council will identify and facilitate the acquisition or development of common automated solutions for transaction processing.”

Lucas adds that this approach also will help agencies focus on the bigger opportunities and challenges with financial systems modernization.

“If agencies take advantage of cloud computing and prebuilt solutions, they can get innovation in way that allows them to get away from building systems and focus on data migration, and change management to get people ready to use new tools, and do the integration with legacy systems,” he says.

Not all vendors were pleased with the memo. One source at a large systems integrator, who requested anonymity because they didn’t get approval to speak for their company, says the memo seems to be too prescriptive.

The source says OMB and agencies don’t follow the commercial model-which works more often than not-where the customer focuses on the end result and not the step by step implementation.

“What OMB is calling for seems to take away our flexibility to get the job done,” the source says. “They are dictating how we are going to do it. The main thing I don’t see here is any focus on the business side of equation, which usually is the biggest challenge.”

A former Hill staff member, who also requested anonymity, says Congress likely will have some issue with OMB controlling the funds for these systems through apportionment.

But the staff member says the memo is trying to address long standing problems among agencies.

“OMB still has to make sure there is leadership on these projects,” the source says. “The one thing that always stands out among successful projects is they have top level leadership buy in, and the ones that failed generally didn’t have that commitment.”

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