A shared services détente?

Did Dave Mader, the controller of the Office of Management and Budget, just open the door to private sector firms providing financial management shared services to agencies? I think he might just have propped open a door that has been shut for several years.

At the recent Association of Government Accountants and ACT-IAC Shared Services Summit, Mader said addressing the supply and demand problem—more demand than there is supply of shared services—may come back down to industry.

“These are multi-year projects and I think what we find ourselves now is actually at a point where we don’t have the capacity to handle all of the demand. We haven’t decided how do we increase the supply?” he said. “There are a couple of options. We could go to the existing providers and say, ‘can you up your capacity?’ Well, then you get into the dilemma of where do they get the funding to up their capacity? I don’t think anyone will say build it and they shall come. How do you guarantee that actually you will have clients in the future if you make the investment, but even with the franchise funds you have now, people don’t have the capital to make those kinds substantial investments. So it’s kind of a Catch-22 that we are in.”

Mader said another option is to bring new providers into the marketplace based on agencies currently doing financial management work for internal customers.

“We’ve had conversations with folks who just do internal provisioning to see if they would be interested,” he said. “The third option would be are there models that we could develop with the private sector where they would provide the necessary services that we need? When you think about the cloud, when you think about systems and what are we really buying—I’m really just buying the service. I don’t need the infrastructure. I don’t need the hardware. I don’t need the software. I don’t need the building. What I basically need is to be able to provide the information to you, you digest that information and you give that back to me.”

Yep, a third option–not a third rail, but an option to use private sector providers. This is a major policy change in the world of shared services. Of course, it’s for the next President and OMB political staff to tackle, to which Mader said the next administration needs to take a serious look at the supply and demand model.

For years, OMB has pushed back against private sector complaints that the current shared service strategy limits industry’s role to just support of federal providers versus being full-service options for agencies. Part of the reason for that is the long-history of failures of financial management modernization efforts—whether the Labor Department or the Small Business Administration or the fact the Homeland Security Department just couldn’t get out of the starting block.

OMB has been promising for the better part of two years to address the capacity issue, studying the options that should lead to a plan.

At the root of the problem is a 1932 law called the Economy Act that prohibits many federal shared service providers from retaining earnings year to year. This makes it difficult for them to plan and pay for business needs like marketing, new technology and hiring personnel to meet customer demands. Federal providers also can’t spend money they don’t have because they’d violate the Anti-deficiency Act. This means they can’t hire more people or expand technology with the expectation of new business.

Maybe after looking at those options, including addressing the Economy Act, OMB is realizing turning back to the private sector was the only viable option to address the supply challenge.

Another factor in the potential change of heart could be connected to the rigor OMB and the Unified Shared Service Management (USSM) Office is putting around the financial management effort.

Beth Angerman, director of the USSM, said earlier in October her organization released a new federal integrated business framework.

“This framework is going to take all the good work the managing partners have done, and there’s been a lot. You can look at the work the Financial Innovation and Transformation (FIT) has done or human resources has done and grants and travel have done, there are so many best practices in these lines of business that we can take them and finally put them together and start talking about things in a consistent way,” Angerman said. “This doesn’t seem like it should be a significant win, but it is. We need to start talking about things using a common vocabulary—words really do matter—and it makes sense to start talking about how we talk about outcomes, how we define those outcomes, how we are actually talking about the processes, how we are documenting these things matter because you guys are using these things. It’s really important for us to start being consistent across that and hence the rebirth of what we are calling the managing partner council.”

The framework focuses across four areas that are common across all agencies:

• Business outcomes—Angerman said agencies need the same outcomes, such as money going to the right people and documenting that in a consistent way is important.
• Data and performance metrics—Agencies need to measure those outcomes and explain how the lines of businesses intersect. Angerman said in order to have a competitive market, agencies need to say what they want and where they are common and where they are not. “That’s an important differentiator with this effort, it’s about the commonality among us and it’s also about defining where we have legitimate differences,” she said.
• Functions and activities—This area aims to describe, for the first time, the specific work performed within various functions and how agencies baseline that list to turn into a real shared service catalog. “You can find out where you can go for certain functions, or really help you, as the customer, think about if you go through this list, maybe that’s something you want to move to a shared service provider or something you want to keep in house,” Angerman said.
• Use cases—Angerman said this is the newest part of framework where FIT helped document processes, how the systems intersect, what the end user needs and the value proposition. “We want to make sure we are starting to talk about what the government needs in the same way the customers talk about their needs. That is the fundamental change of the new element to our framework,” she said.

John Hill, the assistant commissioner of FIT in the Treasury Department, said the longer-term goal is when two agencies talk about financial management they will have a common understanding of what the outputs, outcomes, procuring the service, paying the provider and all associated activities.

Hill said FIT has divided the financial management landscape into 11 different processes and the framework includes individual scenarios describing each process. He said the use cases help define the end-to-end financial management process.

Through the work by FIT and USSM to define and standardize the processes, Hill said that’s when the government can understand how to address the supply challenge to reach maximum economies of scale.

Angerman said aligning the marketplaces also will help identify current and future gaps with providers.

“This is the foundation of the work that needs to be done to answer the question of supply,” she said.

And it’s that question of supply that needs to be figured out before shared services can work effectively. If industry is part of the answer, having the processes and language standardized will make for a high probability of success no matter where agencies turn for services.

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