Financial systems are vital to the effective management and oversight of public funds, because the information they provide is used by government officials to make decisions about agency programs and operations. In order to improve the quality of financial data available to government officials, Congress has funded a number of financial management improvement initiatives. One recent effort to improve agency financial systems, the Financial Management Line of Business (FMLOB) initiative, was launched by the Office of Management and Budget (OMB) in 2004. While the objective of moving to a shared services environment is widely supported in principle, a range of public and private sector observers has expressed concern that the initiative is moving too fast. Critics say that the capabilities of some SSPs have not been adequately demonstrated, that internal control problems should be addressed prior to migrating core financial systems, and agencies need time to prepare their personnel and build internal support for the initiative. Implementation should be delayed, critics argue, until these and other risk factors have been mitigated. Large-scale financial modernization efforts have the potential to generate more timely and accurate financial data, which are needed for effective oversight of agency programs and operations. The House Subcommittee on Government Management, Finance, and Accountability, has held several hearings on the initiative, although no bills have been introduced. This report provides background information on the FMLOB's origins and goals, and presents the arguments of supporters and critics of the initiative. Finally, it discusses the project's implementation status. The financial management task force determined that "significant savings" over a 10-year period were possible if the government consolidated agency financial systems and standardized the related business processes. According to the business case, transferring agency financial management functions to SSPs would enable to government to:
improve its leverage in negotiations with suppliers; reduce future agency development, modernization, and enhancement expenditures; reduce future agency operation and maintenance expenditures; retire agency "stovepiped" core financial systems; re-deploy current agency financial management personnel; improve agency program decision making due to enhanced financial reporting; and leverage best practices for investment management, procurement, budgeting, and real estate management. Goals

The stated objective of the FMLOB is to improve the cost, quality, and performance of government financial management systems by utilizing shared service providers and implementing other government-wide reforms. Timing

With "limited exception," the guidance requires that when an agency identifies a need to upgrade or modernize its core financial system, it must, at that time, either select an SSP or become designated as a federal SSP itself. FFMIA Compliance

OMB also argues that the FMLOB will increase the number of agencies in compliance with the Federal Financial Management Improvement Act (FFMIA) of 1996. In the report, which was prepared at the request of the House Subcommittee on Government Management, Finance, and Accountability, NAPA stated that the move to a shared services environment "makes a great deal of sense," citing its potential to reduce operating costs and free agency CFOs and their staff to focus on core program activities.
Federal financial management systems generate the information that is used by government officials to manage and oversee agency programs and operations. Concerns about the quality of agency financial information, and about the costs of operating and modernizing the systems that produce it, have prompted a number of systems improvement initiatives in recent years. One such effort, the Financial Management Line of Business (FMLOB), seeks to improve the cost, quality, and performance of government financial systems by consolidating agency core systems functions at a limited number of third-party shared service providers (SSPs), and by standardizing the related business processes government-wide.
As part of the initiative, the Office of Management and Budget (OMB) in 2006 directed all federal agencies needing to upgrade or modernize their financial management systems either to transfer their core financial functions to an SSP, seek designation as an SSP, or to prove that they can operate their in-house systems with less risk and at a lower cost than an SSP. Agencies that undergo migration must, in most cases, select their SSPs through competitions between public and private organizations. OMB's guidance also requires all agencies eventually to adopt government-wide business and accounting practices, which are under development in FMLOB workgroups.
It is widely acknowledged that consolidation and standardization might improve the cost and quality of agency financial data. Proponents suggest that the sooner agencies move to SSPs, the sooner the government might enhance its efficiency and capacity for oversight. Concerns have been expressed, however, by both public and private sector observers, that the initiative is moving too fast, and that important issues surrounding the transition to shared service providers have not been adequately addressed. Critics argue that migration should be delayed until agencies have strengthened their internal controls, fully evaluated the qualifications of potential SSPs, and educated their personnel about the initiative. Evidence from previous systems modernization efforts suggests that these issues might put the FMLOB at increased risk for cost overruns, schedule delays, and problems with the accuracy of the data after implementation.
Effective congressional oversight of agency programs and operations is dependent, in part, on the availability of timely and accurate financial data. Congress has invested billions of dollars in systems modernization projects in recent years, but these efforts have not consistently yielded significant improvements in the information they produce. The House Subcommittee on Government Management, Finance, and Accountability has held several hearings on the initiative, although no bills have been introduced.
This report examines the origins and objectives of the FMLOB, outlines the arguments of the initiative's supporters and critics, and discusses the project's status. It will be updated as events warrant.