OMB begins pruning of financial systems

By Jason Miller
Executive Editor
Federal News Radio

The Office of Management and Budget wants to save about $1 billion a year by improving how agencies manage financial system modernization projects.

And if the early trend across just four agencies is any indication, reducing governmentwide spending on these often-troubled programs shouldn’t be that difficult.

OMB Wednesday announced that the Small Business Administration would follow the lead of the Veterans Affairs Department by cancelling a major financial systems modernization project. Additionally, OMB controller Danny Werfel said during a press call with reporters that the Environmental Protection Agency and the Department of Housing and Urban Development would reduce the scope of their financial systems projects.

Werfel said the changes or cancellations in these four agencies will save the government more than $760 million over the life of the projects. OMB did not have actual or estimated cost savings for 2010 or 2011, according to a spokeswoman.

“SBA and the VA are no longer pursuing more transformative changes,” Werfel said. “Their current technology is serving them effectively and can be maintained for time being. They still will need to make more modest enhancements, but that is different than the replacement of a system and a major overhaul.”

VA announced in July that it had cancelled its $423 million FLITE system. VA Assistant Secretary for Information and Technology and chief information officer Roger Baker and chief financial officer Todd Grams met earlier this summer and decided that FLITE’s cost and risks outweighed its benefits.

“The huge amount of money needed for a financial management system did not compare favorably with other, more pressing needs for IT dollars,” said a VA spokesperson. “We will continue to work on shorter-term, lower-cost fixes designed to bolster the capabilities of our existing system.”

EPA and HUD will continue with their current projects, but on a much smaller scale.

“EPA came into this process with a large footprint of technology that was budgeted for and planned and when they relooked at their project along with the advisory board and OMB, we determined that there could be risk reductions if the projects were segmented and sequenced differently, Werfel said. “We could focus on the more mission critical items up front and defer the less mission-critical items into the future.”

Werfel said EPA and HUD will continue to modernize specific parts of its financial systems, and should the program be successful, future funds would be available to move out on the next set of functions.

EPA, HUD, VA and SBA were the first four agencies to under reviews by OMB and a six-person advisory panel made up of CFO and CIOs. OMB laid out how the reviews will work in a June 28 memo and detailed the 30 systems which will undergo these reviews.

“This effort is about ultimately improving the success rate of these financial systems modernization projects and improving taxpayer return on IT investments,” said Jeff Zients, acting OMB director and chief performance officer.

Zients added that part of the way to improve agency IT and financial projects is by adopting private sector best practices. These include constantly reviewing initiatives and deciding to pull the plug if they are going off track and can’t be fixed.

“Historically most government agencies have not done this,” he said. “We are changing that. We are changing how the government does business, rigorously examining what works and what doesn’t, and cutting and reforming projects that are late and/or over budget.”

Interestingly, only one of the four projects met any of those the criteria of being over budget and/or off schedule, at least according to OMB’s IT dashboard.

VA’s FLITE program received a 5 out of 5 rating by Baker, is more than $127million under budget, but is almost 30 percent off schedule.

HUD’s project is $28 million under budget, meeting its schedule with a variance of less than 10 percent and received a rating of 3 out of 5 from its CIO. SBA’s project received a rating of 3 out of 5 by its CIO and was under budget and on schedule. And EPA’s program is $37 million under budget, has a schedule variance of less than 4 percent and received a rating of 3 out of 5 by its CIO.

“Our strategic shift is a sign of the tough economic times,” said Doug Criscitello, HUD’s CFO. “We have been working on the HUD Integrated Financial Management Improvement Project (HIFMIP) for several years and have determined that more focused approach to our financial systems modernization will still get us where we need to be while ensuring that we are not overspending.”

HUD’s original plan proposed implementing three separate upgrades to its financial systems beginning with its core system used for most of the Department, followed by the integration of financial systems and information from Ginnie Mae and the Federal Housing Administration.

Criscitello said now HUD will modernize the core systems, but instead of moving forward with the other parts will conduct a study of the other systems to see if it makes sense to augment the Ginnie Mae and FHA systems too.

Requests to SBA and EPA for comment were not returned by press time.

“We want to make sure we are investing only in the top priorities where it’s needed,” Werfel said. “What we find with financial management systems is there is certainly a need to modernize. We can improve a lot of different elements of financial management, accounting and internal controls. So for EPA and HUD, we see very meaningful opportunities to modernize those projects and get benefits for the taxpayers that are warranted and should be pursued.”

But for other agencies, such as VA and SBA, Werfel said as they reviewed systems and projects realized the cost and risks outweighed the benefits of a new system and the existing systems can be maintained.

“We can take this time to make sure that those taxpayer dollars are being invested on administrative support structures or other technology issues that are more pressing and more emergent right now,” he said. “This exercise has allowed them to look at their portfolio and determine where their needs are more emergent.”

Agencies have until the end of September to submit to OMB revised project plans, according to the June 28 memo. OMB states it will review those plans within 60 days of submission, and by early fiscal 2011 OMB, the advisory board and the agency will make a decision about how proceed with the project.

“Where we have faltered in the past is we have tried to do more than the organization is capable of doing,” Werfel said. “The complexity needs to be attacked differently than what we have done in past. We can’t try to change everything all at once. We need to rethink the challenges into segments and invest in this first segment that provides the greatest bottom line impact for the agency.”

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