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Wednesday, April 09, 2014

Financial management providers ill-equipped to take on large customers

A metric of success for federal shared services is how many agencies are using the capability. Federal financial management shared service providers are facing an uphill battle to meet that metric.

One of the biggest challenges to making this second attempt at financial management shared services in the last decade successful is federal providers' ability to ramp up in a timely manner.

Interior, Transportation, Treasury and possibly as many as four other agencies are gearing up to accept 40,000 or more new customers at a time over the course of the next few years.

As federal financial management shared services providers, these agencies need help in the form of changes to law and policy to meet those goals.

Experts say only by letting these providers act more like private sector businesses will federal shared services find success.

In part 2 of the special report, Shared Services Revisited, Federal News Radio explores the long-standing capacity challenges that current and new financial management shared service providers will have to overcome in the coming years to meet the growing demands of agency customers.

The Office of Management and Budget requires agencies to modernize financial management systems only through federal shared service providers (SSPs). In a March 2013 memo, OMB detailed its plans to reduce costs and duplication across the government through the use of federal SSPs.

But many of the same questions limited the success of this initiative in the mid-2000s, including whether the shared service providers have the capacity to handle large cabinet level agencies.

Over the course of the last seven years, no cabinet level agency moved to a federal shared service provider. The Labor Department outsourced to a private sector provider. The Small Business Administration unsuccessfully followed suit to a different private sector company.

But over the course of the next five to 10 years and starting this year with the departments of Commerce and Housing and Urban Development, and the Coast Guard, large agencies are expected to let go of their financial management systems and take advantage of a multi-tenant set up that is widely considered an industry best practice.

OMB and Treasury's Office of Financial Innovation and Transformation (OFIT), which is managing the financial management shared services initiative, are trying to address the challenges providers face.

But it's about more than just money and people. The question is whether Interior, Transportation, Treasury or any of the new providers can handle more than one large agency every few years.

Federal and private sector experts say migrating to a shared service provider is extremely complex.

Beth Angerman , the director of OFIT, said OMB and OFIT will not mandate where agencies migrate to, but there are factors that agencies must take into account.

"We recently finished the design of the FIT Agency Modernization and Evaluation (FAME) process. What that process consists of are a series of evaluative models and artifacts that are produced by the agency with FIT's oversight and assistance to help them get through different gates of identifying if there is a federal shared service provider who will meet their needs," Angerman said.

OMB estimates agencies are spending $8 billion a year and have more than 53,000 people supporting all federal financial management systems.

There is a long history of financial management systems that have failed to meet expectations. In fact, OMB in 2010 reviewed 30 financial systems to ensure they were meeting cost, schedule and performance goals, and ended up rebaselining several after finding they were off track.

Despite this increased oversight, the Government Accountability Office found in 2012 that the reviews had little effect. Auditors said 13 projects estimated no change in their long term costs, and 16 said their schedule remained the same.

So given all of these systemic problems, Angerman said the private sector has to appreciate the changes that are happening, meaning once they were implementing large scale systems, and now they are supporting the agency providers with specific expertise.

-Jason Miller, FederalNewsRadio.com

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