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Saturday, March 06, 2010

Regulations could bog down financial system modernization

The Obama administration's plan to modernize financial systems governmentwide could hit regulatory speed bumps, according to an analyst who monitors government spending.

The U.S. Government 2009 Financial Report, released on Feb. 26, said agencies must reconsider expensive, long-term investments in favor of shorter-term, more efficient information technology solutions that rely on shared services, which are centralized IT hubs that support multiple agencies. The Office of Management and Budget plans to issue guidelines on overhauling financial systems by the spring. But it will be a challenge for agencies to find tools that can meet the federal government's myriad, strict accounting rules, said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources, a market research firm. In addition, long-term investments cannot be turned off overnight.

Agencies have tried to revamp outdated, disjointed financial systems before, but have encountered the same obstacles likely to stymie this effort, Bjorklund noted. The George W. Bush administration launched the Financial Management Line of Business Initiative to lower the cost and boost the performance of systems by decommissioning existing technologies and moving to shared services. The hurdle confronting that effort and the new one is the mountain of federal financial management requirements for systems, Bjorklund said.

He pointed out that the Financial Systems Integration Office has verified just seven products as compliant with core financial system requirements.

Financial management has requirements that go beyond book-keeping and trace back to the Constitution, Bjorklund explained. GAO maintains an appropriations law book surpassing 2,600 pages; the OMB Office of Federal Procurement Policy issues standards for contractor reporting; the Federal Acquisition Regulations stipulate how contracts are to be structured; and the Treasury Department maintains the U.S. Government Standard General Ledger, Governmentwide Financial Report System, Government Online Accounting Link System, and other rules. Then, each agency has a variety of contract reporting and payroll systems, in addition to complying with international banking standards for electronic funds transfers.

OMB spokesman Tom Gavin said such long-standing audit and reporting requirements are not the drivers of the escalating cost of financial systems. Rather, the barriers include the unnecessary intricacy of business processes, the use of decentralized IT for common financial management activities and a lack of robust project management.

OMB's Office of Federal Financial Management is working closely with agency chief financial officers to identify procedures for exercising better oversight of spending and easing information sharing between systems, Gavin added.

This spring, Treasury is testing a model for vendor invoices that will be made available to all federal agencies and their suppliers, department officials said on Friday. The system allows vendors to electronically submit bills to a central location for processing. At present, agencies maintain separate invoice systems, creating duplication. The new arrangement would consolidate data from all transactions into a single Web site. Agency officials would be able to view a directory of suppliers already enrolled in the system.

Standardizing the billing process is intended to cut costs by eliminating the need to re-enter data -- and improve data quality by reconciling information from multiple sources, Treasury officials said. The Federal Reserve Bank of Boston, acting as Treasury's fiscal agent, is assisting Treasury with the pilot.

Gary Therkildsen, federal fiscal policy analyst at government transparency group OMB Watch, said the administration's tactic is a reversal of other modernization approaches that have failed. For example, the IRS abandoned a plan to update its tax-filing Web site because of poor planning and the high cost of replacing existing equipment. In contrast, the White House's plan calls for inexpensive measures and new OMB guidelines.
- Aliya Sternstein, NextGov.com
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