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Friday, June 09, 2006

Reeling In Business

"Entries in the Forest Service's financial management system can be so inaccurate that in 2002, the agency had to adjust its record for the value of its real property assets by $1 billion. At the time, financial management at the Forest Service was on the Government Accountability Office's high-risk list, and the agency never had received a clean audit opinion. It was struggling to keep straight its various financial systems, which track data such as payments from loggers for timber harvested on national land, fees from ski resorts operating on that land and costs charged to other agencies for Forest Service assistance during emergencies.

Jesse King, the Forest Service's chief financial officer, arrived at the height of that mess in 2001. Part of the problem, he observed at the time, was the Forest Service had 153 financial operating units. Preparing these combined financial statements in a timely fashion required herculean efforts, he says. King came from commercial banking, where consolidation of administrative functions as a means of cost savings was de rigueur. He brought those 153 units to a center in Albuquerque, N.M., in February 2005, which will save $36 million in operating costs annually after recovering the initial investment costs, he says. That's the equivalent of about 700 more park rangers. The Forest Service received its first clean audit opinion for fiscal 2002, helping the Agriculture Department get its first as well. (The Forest Service is Agriculture's largest agency.)

But from the perspective of the Office of Management and Budget, King's ap-proach is not centralized enough. OMB's financial management arm has instituted a use-it-or-lose-it approach to federal accounting, telling agencies late last year that they must either move their financial systems to a designated public or private center for financial management or become one themselves. Linda Combs, OMB's controller, recently emphasized timing during an interview: "We're encouraging them to look at this when it makes good sense to look at a new financial system or [when] upgrading their financial systems."

According to OMB documents, 17 of the 24 largest agencies still host their own financial management systems. Two agencies, the Labor Department and Small Business Administration, rely on a commercial center for hosting, and four agencies use federal centers. Within the next decade, OMB expects most agencies to move their financial management systems to outside providers."

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