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Tuesday, February 20, 2007

The big issue for FM LOB

Small agencies see the benefits in shared services, but large agencies don’t want to give up their control

The Office of Management and Budget’s plan to turn agency financial management upside down has left many large agencies with motion sickness.

Large agencies shudder at the thought of outsiders performing their financial-management processes, and that fear is causing a delay in the across-the-board savings OMB has been hoping to achieve under the Financial Management Line of Business Consolidation effort.

“Hosting, that’s not scary. Someone else handling your business processes, that’s scary,” said Danny Harris, Education Department deputy chief financial officer and team leader of the Financial Systems Oversight Team for the CFO Council. “Nightmares of poor internal controls come to mind.”

At least five large agencies have justified not moving to one of the four public-sector shared-services providers or a private-sector vendor in the past few years. Their justifications centered on the fact that they were already implementing a new system or upgrading an existing one that meets the governmentwide financial requirements (see story, Leaders want reporting on same page, Page 8).

While large agencies have been tepid about using the FM LOB, small agencies are jumping on the shared-services-provider bandwagon in large numbers. And these smaller agencies may have something to teach their larger brethren when it comes to moving to SSPs.

Small agencies have been taking advantage of shared services for years, even before OMB initiated the Financial Management Line of Business, said Anton Porter, deputy CFO at the Federal Energy Regulatory Commission and liaison for small agencies to the CFO Council.

“If you are a large agency, you don’t see any real examples of a shared-services provider handling a large external customer that has a tremendous amount of volume and complexity in their financial-business processes,” Harris said.

And there really are no commercial providers that handle a large volume of federal financial business transactions, he said.

Despite the perception that shared-services providers cannot adequately handle large agencies’ business, the providers can indeed handle the volume of transactions, locations, number of dollars and the number of heavy users, said Doug Bourgeois, director of the Interior Department’s National Business Center, a financial-management and human resources shared-services provider. NBC, for example, is supporting Interior’s move to Financial Business Modernization System, including operations and services, he said.

OMB directed in the fiscal 2006 budget request that agencies migrate their core financial services to providers when they upgrade their financial-management systems.

OMB said that, to date, of the 25 CFO Act agencies, four have become SSPs and four have migrated to one of them, including the Environmental Protection Agency earlier this month (see story, Page 8). Currently, the Agriculture Department, Housing and Urban Development Department, and the Office of Personnel Management are in various phases of their FM LOB competitions, OMB said.

Over the next 10 years, OMB anticipates that two to three of the CFO Act agencies annually will compete to migrate to a shared-services provider.

The Federal Accountability for Tax Dollars Act of 2002 placed the same financial reporting requirements on small agencies as on large CFO Act agencies, including requirements for financial statements and use of a financial system that meets federal requirements.

For larger agencies, OMB and FSIO need to bolster the business case to move. Agencies have to have good financial, programmatic and management reasons to move, Harris said.

The likely scenario is that FM LOB will prove to be good for small agencies; some large agencies will come aboard, some will not, Bourgeois said.

“From a leadership standpoint, it may not be the right answer because economies of scale and effectiveness gains are not achieved until you migrate the service part,” he said. “The transactions and operations folks are where you get maximum effectiveness and efficiency gain for the government.”

- Mary Mosquera, GCN.com

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