The largest payroll provider for federal employees is at risk, and if there aren’t improvements soon, hundreds of thousands of employees could see the impacts immediately.

The National Finance Center, an agency housed in the Agriculture Department, is struggling with legacy IT systems, limited funding, low staffing — and even building maintenance issues. In a new nine-month study, the National Academy of Public Administration said NFC must take immediate action, or else risk being unable to provide payroll services to more than 170 agency customers, spanning some 650,000 federal employees.

“It is unthinkable that the U.S. government could find itself in a position where it could not pay a sizeable portion of the federal workforce — but it could happen, at least in the short term,” the NAPA report, published earlier this month, said.

While other agencies may struggle with similar issues — like legacy IT, funding challenges and workforce attrition — NFC’s direct connection to other federal employees makes the impact all the more imminent.

“Nothing is more personal than getting your paycheck — and getting your paycheck correctly and on time. That is a very critical function within the federal government,” Margie Graves, former deputy federal CIO, and co-author of the NAPA study, said on The Federal Drive.

USDA, which manages NFC, specifically reached out to NAPA to commission the report, as NFC faces some daunting workforce and technology challenges. NAPA is chartered to work with agencies, under congressional authority, to help them solve major problems using the expertise and recommendations of former federal executives.

“USDA strives continuously to improve our operations, and the findings of this [NAPA] assessment will help guide the agency’s work for years to come,” a USDA spokesperson said in an email to Federal News Network. “The NAPA report highlights USDA’s strengths, including its commitment to financial management practices and a dedicated workforce, and lays out a number of actions that USDA should undertake to improve customer service, operational processes, its technology platform and funding resources.”

NFC’s workforce, customer experience and IT issues all overlap

NAPA’s report highlighted four key areas where NFC needs to take action to prevent service delays to agencies and their employees on payroll: customer experience, employee experience, IT and funding.

For one, customer experience is important, the report said, because some agencies are “notably dissatisfied” with NFC’s services.

“Poor service is costly for customers,” the report said. “Customers must devote their own staff hours to complex and time-consuming processes and, in some cases, to maintaining backup systems to manually document their transactions and activities. Some customers interviewed even indicated interest in transitioning to another service provider, if they could.”

And within NFC’s workforce, despite the agency having dedicated employees, NAPA said a combination of numerous challenges — lack of steady leadership, decreased staffing levels, loss of institutional knowledge, antiquated systems, bureaucratic processes, growing retirement eligibility and deficient workspaces — create a perfect storm, where employees struggle with low morale, overwork and poor work-life balance.

Additionally, employees have been working in temporary, subpar conditions for years, after a tornado destroyed NFC’s office building in New Orleans in 2017.

In the next 10 years, 70% of NFC’s employees will be eligible to retire. And when personnel leave NFC, they’re not always replaced, leaving behind larger skills gaps in the agency’s workforce over time. And with employees leaving, there is a loss of institutional knowledge, particularly in technology, that could further hinder IT improvements.

“When those things happen, and couple that with the lack of investment in the IT infrastructure over time, that results in a deterioration of the actual service to the customer, and that customer becomes unhappy,” Graves, currently a senior fellow at the IBM Center for the Business of Government, said.

Similar to many other agencies, “unautomated and paper-based internal management processes make NFC’s operations sluggish and inefficient and directly impair employees’ ability to serve customers” the report said. NAPA estimated that it would cost between $200 and $300 million to modernize NFC’s systems.

But to make any changes, resolving funding challenges at NFC is additionally critical, the report said. Still, there are a number of challenges in the way.

“Appropriations rules and practical considerations together constrain the amount of fees NFC can charge its customers, who have their own budget constraints,” the report said. “USDA offices are themselves customers, and while NFC’s service to its internal customers is deteriorating in part from lack of funds, it still generally receives neither appropriations from Congress nor dedicated financial support from USDA.”

And there are gaps in leadership at NFC, too, making the other challenges all the more difficult to resolve.

“NFC’s current leadership structure is not appropriately sized or organized to deal with the scope of the change that is needed,” the report said. “It must be strengthened and expanded to successfully meet NFC’s challenges while maintaining operations.”

Solving complex problems “both a marathon and a sprint”

The path to fixing the multitude of problems at NFC is both a marathon and a sprint, NAPA said. The resolution will involve a multi-faceted approach, to add more funding and stability within the agency. It will require support from both USDA and Congress. Tackling some problems immediately will be essential.

“It’s not like there’s a place to migrate or anything immediately available where you could offload or transition [services],” Graves said. “Anything that would be developed over time will take multiple years. It’s not as if there is an easy off-ramp, in any way, shape or form … There’s not a whole lot of time to waste.”

NAPA said NFC must improve its technology infrastructure, its customer and employee experiences, and gain support for consistent and increased funding.

Part of that will involve strengthening and expanding NFC’s leadership, particularly in transformation, customer and employee experience and IT modernization, NAPA said.

And the road to improvement, at least on the customer experience end, will involve creating more communication with customers.

“You are conducting surveys and constant conversation and interaction with both in order to gain the lay of the land, and then to make a plan to take specific action against those complaints,” Graves said. “When people see you actually doing that, they become more forgiving, and they become more of your partner in this journey, as opposed to adversarial.”

The problems at NFC are deeply rooted, and therefore the road to improving will be a long one, but Graves said there is a “first phase” for NFC to start on that path.

“We’re at a point where we have got to make at least the stabilization investment in the IT infrastructure, bringing up some modern capabilities into the equation, doing some automation, getting the most current versions of the types of software and systems that are in their ecosystem,” Graves said. “And getting to a point where we are on an even keel with our customers and our employees — the employees feel good about being able to deliver, the customers feel good about being able to receive an effective service.”

NFC on track to hire 80 more employees by January

NFC recently laid out a new five-year vision, called “stabilize, modernize and grow,” to begin to address many of these challenges. And prior to the release of NAPA’s assessment, USDA had already taken some initial steps to try to improve the situation. For one, the agency has recruited a permanent NFC director, a deputy director and a director of customer and employee experience, an agency spokesperson said.

USDA has started to address the workforce challenges as well, the spokesperson added, by “implementing proactive hiring strategies, engaging in recruitment efforts at educational institutions, conducting employee skills training and using the expertise of retired annuitants.”

Because of those efforts, USDA expects to have an additional 80 or more employees joining the NFC workforce by January 2024.

The agency also hosts town halls and employee surveys, and created a committee for NFC employees to voice workplace concerns, share successful practices and provide feedback to leadership.

In terms of legacy IT challenges, USDA has developed a five-year IT modernization roadmap, aiming to reach stability, modernization and growth.

Overall, the goal is to make NFC a customer-centric, reliable and modern provider of human capital solutions and payroll services.

“USDA appreciates the guidance and recommendations provided by NAPA and will incorporate them in ongoing process improvement efforts and long-term plan to help the NFC ‘stabilize, modernize and grow,’” the agency spokesperson said.

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