FMLOB Migration and Other Financial Management System Guidance

In March 2004, OMB launched the FMLOB initiative, in part, to reduce the  cost and improve the quality and performance of federal financial  management systems by leveraging shared service solutions and  implementing other reforms. Some Agencies Have Used Migration of Core Financial Systems as Part of Modernization Efforts, but Shared Services Use Is Limited

In an effort to capitalize on new technologies to help address financial  management weaknesses and help meet their financial management  needs, about half of the CFO Act agencies are in the process of or have  plans to modernize their core financial systems, which often involve large- scale, multiyear financial system implementation efforts. Overall, 14 of the 23 civilian CFO Act agencies are planning to complete  their efforts to deploy 14 planned systems at various times through fiscal  year 2018. In connection with these migrations, 5 of the 10 agencies plan to rely  on five different commercial providers, while 2 of the 10 rely, or plan to  rely, on the same federal SSP to provide these services, and 3 of the 10  have not determined who the provider will be. In contrast, smaller agencies are  more frequently relying on external providers to provide core financial  system support services to leverage the benefits of using external  providers, as discussed in more detail later in this report. Benefits and Challenges of Agency Migrations Raise Important Issues for OMB’s New Financial Systems Modernization Approach

Agencies and external providers reported that migrating support services  to external providers offers advantages for helping smaller agencies, in  particular, to capitalize on the benefits associated with sharing the  services and solutions available through external providers. As shown in table 3, external providers’ experienced staff, the potential for  cost savings through shared services, increased economies of scale, and  the ability to focus on mission-related responsibilities were cited in the  survey responses of CFO Act agencies as some of the benefits and  advantages of migrating core financial system support services to external  providers. CFO Act agencies also cited various concerns about migrating to external  providers, such as the ability of external providers to provide solutions  that meet the complex and unique needs associated with large agency  migrations. Summary of OMB’s New Approach

To address ongoing challenges with financial management practices, OMB  announced a new financial systems modernization approach, which  encompasses the following five key areas. What specific criteria will be used to evaluate agency modernization project plans  and task orders requiring OMB review and approval? OMB’s June 2010  memorandum states that it plans to issue a revision to OMB Circular No. OMB announced a new strategy and plans for future financial management  system modernization efforts, and began issuing a series of guidance on its  new approach from March 2010 to June 2010. The experience  and challenges related to efforts to implement the FMLOB initiative  provide important lessons learned as OMB continues to develop and  implement its new approach. Critical next steps will include OMB elaborating on its  new approach to address key issues. Articulating key aspects of a strategic plan, such as goals and performance  plans clearly linked to strategies for achieving them and expressed in an  objective, quantifiable, and measurable form, is also critical for the  success of OMB’s new approach. We are not making any new recommendations in this report because of  the early implementation stage of OMB’s new approach; however, we will  continue to work with OMB to help ensure that it provides agency  management and other stakeholders with the guidance needed to bring  about meaningful improvements in financial management systems. We continue to believe that the  questions and issues raised in the report need to be addressed by OMB in  order to reduce risks and help ensure successful outcomes as it moves  forward with its new approach and develops additional guidance. We requested comments on a draft of this report from the Acting Director  of OMB or his designee. The agencies  completed separate questionnaires on each identified core financial  system and the status of activities related to migrating information  technology (IT) hosting, application management, and transaction  processing services supporting these systems to external providers as of  September 30, 2009.
Why GAO Did This Study

In 2004, the Office of Management and Budget (OMB) launched the financial management line of business (FMLOB) initiative, in part, to reduce the cost and improve the quality and performance of federal financial management systems by leveraging shared services available from external providers. In response to a request to study FMLOB-related issues, this report (1) identifies the steps agencies have taken, or planned to take, to modernizing their core financial systems and migrate to an external provider and (2) assesses the reported benefits and significant challenges associated with migrations, including any factors related to OMB's new financial systems modernization approach. GAO's methodology included surveying federal agencies to obtain the status of their financial management systems as of September 30, 2009 (prior to OMB's March 2010 announcement of a new approach), and interviewing officials with selected agencies, external providers, and OMB. In oral comments on a draft of this report, OMB stated its position that it was too early for GAO to draw conclusions on its new approach because it is still a work in progress. For this reason, GAO is not making any new recommendations. However, GAO observes that the experience and challenges related to prior migration and modernization efforts offer important lessons learned as OMB continues to develop and implement its new approach.

What GAO Found

In an effort to capitalize on new technologies to help address serious weaknesses in financial management and help meet their future financial management needs, federal agencies continued to modernize their core financial systems, which often has led to large-scale, multiyear financial system implementation efforts. For the last 6 years, OMB has promoted the use of shared services as a means to more efficiently and effectively meet agency core financial system needs. Overall, 14 of 23 civilian Chief Financial Officer (CFO) Act agencies are planning to complete their efforts to deploy 14 new core financial systems at various times through fiscal year 2018, and in connection with their modernization efforts, 10 of the 14 agencies are migrating, or planning to migrate, hosting and application management support services to external providers. GAO also found that the CFO Act agencies were not using a limited number of external providers, a critical element of OMB's original approach. Five of the 10 agencies planned to rely on five different commercial providers, while 2 of the 10 planned to rely on the same federal provider and 3 had not determined the provider. In contrast, smaller agencies were more frequently relying on the four federal shared service providers to provide core financial system support services to leverage the benefits of using external providers. The most common benefits of migrating cited by CFO Act agencies were external providers' expertise, the potential for cost savings, and the agencies' ability to focus more on mission-related responsibilities. However, CFO Act agencies and external providers cited various challenges affecting modernization and migration efforts, such as reengineering business processes and the ability of external providers to provide specific solutions that meet complex agency needs. In March 2010, OMB announced a new financial systems modernization approach that focuses on the use of common automated solutions for transaction processing, such as invoicing and intergovernmental transactions. OMB issued a memorandum in June 2010 that included guidance for key elements of its new approach, such as agencies splitting financial system modernization projects into smaller segments. This new guidance also requires CFO Act agencies to halt certain modernization projects, pending OMB review and approval of revised project plans. Important aspects of the new approach have not yet been developed or articulated and OMB has stated that it plans to develop additional guidance. In GAO's view, it is critical that OMB's new guidance elaborate on the new approach and address key issues such as goals and performance plans clearly linked to strategies for achieving them, a governance structure, and specific criteria for evaluating projects. GAO believes these issues need to be addressed to reduce risks and help ensure successful outcomes as OMB moves forward with its new approach. GAO will continue to work with OMB to monitor the implementation of its new approach.