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entitled 'Financial Management Systems: OMB's Financial Management Line 
of Business Initiative Continues but Future Success Remains Uncertain' 
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Report to the Chairman, Subcommittee on Federal Financial Management, 
Government Information, Federal Services, and International Security, 
Committee on Homeland Security and Governmental Affairs, U.S. Senate: 

United States Government Accountability Office: 
GAO: 

May 2009: 

Financial Management Systems: 

OMB's Financial Management Line of Business Initiative Continues but 
Future Success Remains Uncertain: 

GAO-09-328: 

GAO Highlights: 

Highlights of GAO-09-328, a report to the Chairman, Subcommittee on 
Federal Financial Management, Government Information, Federal Services, 
and International Security, Committee on Homeland Security and 
Governmental Affairs, U.S. Senate. 

Why GAO Did This Study: 

In March 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 service solutions and 
implementing other reforms. In March 2006, GAO reported that OMB’s 
approach did not fully integrate certain fundamental system 
implementation-related concepts and recommended OMB take specific 
actions. 

This report discusses (1) OMB’s progress in addressing GAO’s prior 
FMLOB recommendations and implementation challenges and (2) the 
effectiveness of OMB’s monitoring of financial management system 
modernization projects and their costs. GAO’s methodology included 
reviewing OMB’s FMLOB-related guidance and reports and interviewing OMB 
and Financial Systems Integration Office (FSIO) staff. 

What GAO Found: 

OMB has made progress toward implementing the FMLOB initiative. In 
March 2006, GAO recommended that OMB place a high priority on fully 
integrating four key concepts into its approach. As shown in the table, 
OMB has completed actions to fully address 5 of GAO’s 18 
recommendations. Although OMB has made progress toward completing the 
remaining 13 recommendations, extensive work remains before the goals 
of the FMLOB initiative are achieved. For example, OMB has yet to 
finalize a financial management system concept of operations, the first 
and foremost critical building block on which the remaining three 
concepts will be built. In addition, development of a migration 
timeline reflecting agencies’ commitment for migrating to shared 
service providers has not yet been completed. Further, agencies are not 
required to consider migrating until the next major release of their 
core financial system and much work remains before the software used by 
shared service providers will incorporate the standard business 
processes currently under development. Accordingly, FSIO officials 
stated it could take 15 years or more before software that incorporates 
these standard business processes is in use governmentwide. We 
recognize that the FMLOB initiative represents a long-term effort; 
however, expediting efforts to address our prior recommendations could 
help achieve more effective and timely benefits. Until OMB fully 
integrates the four key concepts into its approach, the extent to which 
FMLOB goals will be achieved is uncertain. 

Table: Progress toward Addressing GAO’s Recommendations: 

Key concepts: Concept of operations; 
Number of GAO recommendations: 4; 
Status of recommendations: Completed: 0; 
Status of recommendations: Not completed: 4. 

Key concepts: Standard business processes; 
Number of GAO recommendations: 5; 
Status of recommendations: Completed: 2; 
Status of recommendations: Not completed: 3. 

Key concepts: Migration strategy; 
Number of GAO recommendations: 5; 
Status of recommendations: Completed: 2; 
Status of recommendations: Not completed: 3. 

Key concepts: Disciplined processes; 
Number of GAO recommendations: 4; 
Status of recommendations: Completed: 1; 
Status of recommendations: Not completed: 3. 

Key concepts: Total; 
Number of GAO recommendations: 18; 
Status of recommendations: Completed: 5; 
Status of recommendations: Not completed: 13. 

Sources: GAO analysis, OMB and FSIO data. 

[End of table] 

The Chief Financial Officers Act of 1990 and other information 
technology (IT) reform legislation contain requirements related to OMB’
s oversight of agency financial management systems modernization and 
other IT projects. Achieving FMLOB goals requires effective OMB 
oversight of agency modernization projects, but OMB has yet to fully 
address GAO’s previously reported oversight-related recommendations 
such as taking actions to define and ensure that agencies effectively 
implement disciplined processes and develop a more structured review of 
agency efforts. In addition, OMB does not obtain and report complete 
and accurate data concerning agencies’ spending on financial management 
system modernization projects. The lack of sufficient information and 
processes to effectively monitor agency modernization efforts and their 
costs limits OMB’s ability to evaluate and help reduce the risks 
associated with financial management system implementations as well as 
achieve FMLOB goals. 

What GAO Recommends: 

GAO recommends that the Director of OMB take action to facilitate 
complete and accurate reporting of agency spending on financial 
management system modernization projects. GAO reaffirms its prior 
recommendations and emphasizes the need to address those that have not 
yet been completed. OMB generally agreed with GAO’s recommendation, 
described actions being taken, but expressed concern with part of the 
recommendation. 

View [hyperlink, http://www.gao.gov/products/GAO-09-328] or key 
components. For more information, contact Kay Daly at (202) 512-9095 or 
Naba Barkakati at (202) 512-2700. 

[End of section] 

Contents: 

Letter: 

Background: 

Progress Continues but Achieving FMLOB Goals Requires Much More Work 
and Time: 

Previously Identified Weaknesses Continue to Hamper OMB Oversight of 
Financial Management System Modernization Projects: 

Conclusions: 

Recommendation for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Status of Prior GAO Recommendations: 

Appendix III: Comments from the Office of Management and Budget: 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Progress toward Addressing GAO's Recommendations: 

Table 2: GAO Recommendations--Concept of Operations: 

Table 3: GAO Recommendations--Standard Business Processes: 

Table 4: GAO Recommendations--FMLOB Migration Strategy: 

Table 5: GAO Recommendations--Disciplined Processes: 

Figures: 

Figure 1: Overview of OMB Management Watch List Process: 

Figure 2: Overview of OMB High Risk List Process: 

Abbreviations: 

CFO: Chief Financial Officer: 

CIO: Chief Information Officer: 

ConOps: concept of operations: 

DHS: Department of Homeland Security: 

DOD: Department of Defense: 

ERP: enterprise resource planning: 

FEA: Federal Enterprise Architecture: 

FFMIA: Federal Financial Management Improvement Act: 

FMFIA: Federal Managers' Financial Integrity Act: 

FMLOB: financial management line of business: 

FSIO: Financial Systems Integration Office: 

IG: inspector general: 

IT: information technology: 

JFMIP: Joint Financial Management Improvement Program: 

LMP: Logistics Modernization Program: 

OFFM: Office of Federal Financial Management: 

OMB: Office of Management and Budget: 

PMA: President's Management Agenda: 

SFFBP: Standard Federal Financial Business Processes: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

May 7, 2009: 

The Honorable Thomas R. Carper: 
Chairman Subcommittee on Federal Financial Management, Government 
Information, Federal Services, and International Security: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

Dear Mr. Chairman: 

The federal government's ability to efficiently and effectively manage 
and oversee its day-to-day operations and programs relies heavily on 
the ability of agency financial management systems[Footnote 1] to 
produce complete, reliable, timely, and consistent financial 
information for use by executive branch agencies and Congress. Agencies 
continue to spend billions of dollars on maintaining, developing, and 
implementing financial management systems throughout the federal 
government. Although modernization of these systems is expensive, these 
efforts represent a critical element in facilitating agencies' ability 
to institute strong financial management as called for by the Chief 
Financial Officers (CFO) Act of 1990,[Footnote 2] Federal Financial 
Management Improvement Act of 1996 (FFMIA),[Footnote 3] and other 
financial management reform legislation. 

Over a number of years, we have reported that modernizing federal 
financial management systems has been a challenge at many federal 
agencies[Footnote 4] due, in part, to the past practices of each 
federal agency attempting to implement its own systems which have all 
too often resulted in failure, have been delayed, and cost too much. 
Recognizing the seriousness of this problem, in March 2004, the Office 
of Management and Budget (OMB) launched the financial management line 
of business (FMLOB) initiative, in part, to improve the outcome of 
governmentwide financial management system modernization efforts and 
provide timely and accurate data for decision making through the use of 
more cost-effective shared service solutions. Under this approach, 
agencies are to consider the use of certain shared service providers 
for meeting common support services, such as information technology 
(IT) hosting and application management, rather than investing in 
costly and redundant agency-specific solutions. 

In March 2006, we made 18 recommendations to help reduce the risks 
associated with financial management system implementation efforts and 
facilitate the implementation of the FMLOB initiative across the 
government.[Footnote 5] Specifically, we recommended that OMB place a 
high priority on fully integrating into its approach four key concepts: 
(1) developing a concept of operations that articulates the 
interrelationships among financial management systems and how the 
shared service provider concept fits into the overall federal financial 
management framework, (2) defining standard business processes to 
promote consistency within and across agencies, (3) developing a 
strategy for ensuring that agencies' financial management systems are 
migrated to a limited number of service providers, and (4) defining and 
effectively implementing applicable disciplined processes necessary to 
properly manage financial management system implementation projects. 
[Footnote 6] 

Because of your continuing interest in transforming the federal 
government's financial management systems and the broad-reaching impact 
of the FMLOB initiative, you asked us to study a range of issues 
related to the FMLOB initiative as well as efforts at shared service 
providers and agencies involved in migrating to those providers. As 
agreed to with your office, this report provides the results of the 
first phase of our work, including our efforts to determine (1) OMB's 
progress toward addressing our prior recommendations related to the 
FMLOB initiative and other challenges that impede its implementation 
and (2) the effectiveness of OMB's monitoring of FMLOB and financial 
management system modernization projects, including their costs. We 
will address the remaining aspects of your request primarily related to 
FMLOB-related efforts at shared service providers and agencies involved 
in migration activities during the next phase of our work. 

We reviewed and analyzed FMLOB-related policies, guidance, reports, and 
memoranda obtained from OMB and the Financial Systems Integration 
Office (FSIO)[Footnote 7] related to their respective efforts to 
address our prior recommendations as well as efforts to monitor, and 
measure the costs of, financial management system modernization 
projects. In addition, we conducted interviews with key OMB and FSIO 
officials as well as officials with other selected organizations 
knowledgeable about large financial management transformation 
initiatives to obtain views on FMLOB efforts and related challenges. We 
also interviewed knowledgeable officials of two agencies from among 
those agencies spending the most on financial management modernization 
projects to obtain information on agency reporting of such costs. We 
conducted this performance audit from February 2008 through May 2009 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. Details on our scope and 
methodology are included in appendix I. 

Background: 

Modernization of agency financial management systems has been an 
ongoing challenge due, in part, to federal agency attempts to develop 
and implement their own stovepiped systems that all too often have 
resulted in failure, been delayed, or cost too much. Recognizing the 
need for a more holistic approach to address the seriousness of these 
problems, OMB launched the FMLOB initiative in March 2004, in 
connection with the 2001 President's Management Agenda (PMA).[Footnote 
8] 

In part, the FMLOB initiative is intended to reduce the cost and 
upgrade the quality and performance of federal financial management 
systems by leveraging shared service solutions and implementing other 
governmentwide reforms that foster efficiencies in federal financial 
operations. According to OMB, the goals of the FMLOB initiative are to 
(1) provide timely and accurate data for decision making; (2) 
facilitate stronger internal controls that ensure integrity in 
accounting and other stewardship activities; (3) reduce costs by 
providing a competitive alternative for agencies to acquire, develop, 
implement, and operate financial management systems through shared 
service solutions; (4) standardize systems, business processes, and 
data elements; and (5) provide for seamless data exchange between and 
among federal agencies by implementing a common language and structure 
for financial information and system interfaces. 

In connection with this initiative, OMB developed an approach for 
agencies to migrate financial management systems to a limited number of 
application service providers, such as OMB-designated shared service 
providers or private sector entities, which is intended to avoid costly 
and redundant agency investments in "in-house" financial management 
systems. These providers are third-party entities that manage and 
distribute software-based services and solutions to customers across a 
wide area network from a central data center. This concept has commonly 
been used in the private sector and in other foreign governments where 
application service providers provide services such as payroll, sales 
force automation, and human resource applications to many clients. OMB 
is the executive sponsor for the FMLOB initiative and in conjunction 
with FSIO, provides oversight and guidance for the initiative. In 
addition to serving as the program manager for the FMLOB initiative, 
FSIO is responsible for core financial systems requirements 
development, testing and product certification, supporting the federal 
financial management community on priority projects, and other 
activities. 

Although the FMLOB initiative was launched in 2004, modernizing federal 
financial management systems so they can produce reliable, useful, and 
timely financial data needed to efficiently and effectively manage the 
day-to-day operations of the federal government has been a high 
priority for Congress for many years. In recognition of this need, and 
in an effort to improve overall federal financial management, Congress 
passed a series of financial management reform legislation dating back 
to the early 1980s. Some of the notable legislation included in this 
series are the (1) Federal Managers' Financial Integrity Act of 1982 
(FMFIA),[Footnote 9] (2) CFO Act of 1990, (3) Government Performance 
and Results Act of 1993,[Footnote 10] (4) Government Management Reform 
Act of 1994,[Footnote 11] (5) FFMIA, (6) Clinger-Cohen Act of 1996, 
[Footnote 12] and (7) Accountability of Tax Dollars Act of 2002. 
[Footnote 13] FFMIA, in particular, requires the departments and 
agencies covered by the CFO Act to implement and maintain financial 
management systems that comply substantially with (1) federal financial 
management systems requirements, (2) applicable federal accounting 
standards, and (3) the U.S. Government Standard General Ledger at the 
transaction level. In addition to the specific requirements related to 
financial management systems contained in FFMIA, the Clinger-Cohen Act 
of 1996 requires the head of each executive agency to establish 
policies and procedures to ensure that, among other things, the 
agency's financial systems are designed, developed, maintained, and 
used effectively to provide financial or program performance data. 

OMB plays a central role in governmentwide efforts to meet the 
requirements included in these reforms including the establishment of 
federal financial management policy and guidance, as well as overseeing 
the implementation and management of federal financial management 
systems and other IT investments. Specifically, the CFO Act of 1990 
established OMB's Office of Federal Financial Management (OFFM) to 
carry out various financial management functions, including (1) 
providing overall direction and leadership to the executive branch on 
financial management matters by establishing financial management 
policies and requirements, and by monitoring the establishment and 
operation of federal government financial management systems; (2) 
reviewing agency budget requests for financial management systems and 
operations; and (3) monitoring the financial execution of the budget in 
relation to actual expenditures, including timely performance reports. 

The Clinger-Cohen Act of 1996 expanded OMB responsibilities further to 
include establishing processes to analyze, track, and evaluate the 
risks and results of major capital investments in information systems 
made by executive agencies. In addition, in implementing the E- 
Government Act of 2002[Footnote 14] OMB's Office of Electronic 
Government and Information Technology is responsible for, among other 
matters, providing overall leadership and direction to the executive 
branch on electronic government; overseeing the development of 
enterprise architectures within and across agencies; and overseeing 
implementation of IT throughout the federal government, including 
monitoring and consulting on agency technology efforts, as well as 
identifying opportunities for joint agency and governmentwide IT 
projects. 

OMB's IT Investment Oversight Efforts: 

In connection with these responsibilities, OMB reviews and evaluates IT 
spending and other information submitted by the agencies during the 
budget formulation process. Specifically, in accordance with OMB 
Circular No. A-11, Preparation, Submission and Execution of the Budget, 
agencies are required to provide information related to their IT 
investment projects. As part of this process, agencies submit Capital 
Asset Plans and Business Cases (exhibit 300s) and Agency IT Investment 
Portfolios (exhibit 53s) that provide information useful for evaluating 
agency financial management system projects. Agency exhibit 300s are 
intended to describe the business case for each investment and serve as 
the primary means of justifying IT investment proposals as well as 
monitoring IT investments once they are funded. Further, as a reporting 
tool, exhibit 300s are intended to help demonstrate to agencies' 
management, as well as to OMB, that major projects have strong business 
cases for the investment and meet other administration priorities in 
defining the proposed cost, schedule, and performance goals. 

Similarly, information included on agency exhibit 53s is designed, in 
part, to help OMB better understand the amounts agencies are spending 
on IT investments as well as provide information in support of cost 
analyses prescribed by the Clinger-Cohen Act of 1996. For example, 
agencies are required to classify investment projects into one of six 
categories[Footnote 15] as well as specify how much of these amounts 
are for development and modernization[Footnote 16] of IT versus 
operating and maintaining the status quo for IT. In addition, agencies 
are required to report amounts being spent on each investment over a 3- 
year period including the current and prior fiscal years as well as the 
amount included in the agencies' budget request for the next fiscal 
year. As part of the Budget of the United States Government, OMB 
publishes a Report on IT Spending for the Federal Government 
representing a governmentwide compilation of exhibit 53 data submitted 
by agencies across the federal government. 

As part of its efforts to oversee federal IT investments during the 
last few years, OMB has taken steps to identify IT projects that 
warrant additional attention by including them on either its Management 
Watch List and High Risk List, or both. OMB places major IT projects it 
considers to be poorly planned on the Management Watch List based, in 
part, on its detailed review of agency exhibit 300s[Footnote 17] and 
agencies are to submit remediation plans addressing the weaknesses 
identified. OMB updates the Management Watch List quarterly and 
projects are removed from the list as agencies remediate the weaknesses 
identified with these projects' business cases. Figure 1 shows OMB's 
process for developing the Management Watch List. 

Figure 1: Overview of OMB Management Watch List Process: 

[Refer to PDF for image: illustration] 

Project scoring: 
OMB scores IT projects’ exhibit 300s using specific evaluation 
criteria. 

Watchlist: 
OMB places IT projects with unqualified project managers or weaknesses 
in planning, security, privacy, or earned value management techniques, 
and other areas, on its Management Watch List. 

Remediation plan: 
Agencies submit remediation plans to address business case weaknesses 
to OMB. 

OMB follow up: 
OMB follows upon Management Watch List projects and provides feedback, 
as needed. 

Project removal: 
OMB removes projects from the Management Watch List as agencies 
remediate the weaknesses identified. 

Source: GAO analysis, OMB information. 

[End of figure] 

In addition to the Management Watch List, OMB requires agencies to 
identify high-risk projects that require special attention from 
oversight authorities and the highest levels of agency management and 
OMB places them on its High Risk List. These projects are not 
necessarily at risk of failure, but may be on the list because they 
meet criteria[Footnote 18] specified by OMB for inclusion. Further, 
agency Chief Information Officers (CIO) are to assess, confirm, and 
document each of these projects' performance based on whether the 
project was meeting one or more of four performance evaluation 
criteria[Footnote 19] and identify those with performance shortfalls. 
Figure 2 shows OMB's process for developing the High Risk List. 

Figure 2: Overview of OMB High Risk List Process: 

[Refer to PDF for image: illustration] 

Criteria development: 
OMB develops and provides high-risk project criteria to agencies . 

Project identification: 
Agency CIO officials identify list of projects in their IT project 
portfolios that meet OMB’s high-risk project criteria. 

Lists submitted and finalized: 
Agencies submit initial list to OMB for review and work with OMB 
examiners to finalize the list. 

Project performance shortfalls identified: 
Agency CIOs assess, confirm, and document project performance and 
identify projects with performance shortfalls. 

Results documented: 
For projects with shortfalls, agencies provide quarterly performance 
reports to OMB. 

Performance report review: 
OMB reviews quarterly performance reports for projects with shortfalls 
to evaluate progress. 

Source: GAO analysis, OMB information. 

[End of figure] 

Progress Continues but Achieving FMLOB Goals Requires Much More Work 
and Time: 

OMB and FSIO efforts to implement the FMLOB initiative continue to show 
progress and have effectively addressed 5 of the 18 recommendations and 
made progress toward addressing the remaining 13 recommendations we 
made[Footnote 20] related to four areas considered key building blocks 
for governmentwide financial management systems--a concept of 
operations, standard business processes, migration strategy, and 
disciplined processes. Table 1 summarizes the status of efforts to 
address our prior recommendations in each of these four areas. 
Additional information on the progress and remaining actions we believe 
are needed to address each recommendation can be found in appendix II. 
For example, OMB and FSIO have developed guidance to assist agencies' 
efforts in selecting shared service providers and preparing for 
migration, and have taken steps to encourage agencies to embrace 
standard business processes that will help provide consistency as they 
are adopted across federal agencies. 

Table 1: Progress toward Addressing GAO's Recommendations: 

Key concepts: Concept of operations; 
Number of GAO recommendations: 4; 
Status of recommendations: Completed: 0; 
Status of recommendations: Not completed: 4. 

Key concepts: Standard business processes; 
Number of GAO recommendations: 5; 
Status of recommendations: Completed: 2; 
Status of recommendations: Not completed: 3. 

Key concepts: Migration strategy; 
Number of GAO recommendations: 5; 
Status of recommendations: Completed: 2; 
Status of recommendations: Not completed: 3. 

Key concepts: Disciplined processes; 
Number of GAO recommendations: 4; 
Status of recommendations: Completed: 1; 
Status of recommendations: Not completed: 3. 

Key concepts: Total; 
Number of GAO recommendations: 18; 
Status of recommendations: Completed: 5; 
Status of recommendations: Not completed: 13. 

Sources: GAO analysis, OMB and FSIO data. 

[End of table] 

While guidance and communication-related efforts are important, OMB and 
FSIO efforts have not yet fully integrated any of the four key building 
blocks into the FMLOB implementation approach. Further, the 
recommendations not yet completed, in particular, involve critical 
elements integral to success and will require much more extensive work 
before the promised benefits of the FMLOB initiative can be fully 
realized. OMB has not completed development of a concept of operations 
representing the first and foremost building block on which all system 
planning processes as well as the remaining building blocks are built. 
This critical tool is essential for providing an overall road map for 
FMLOB efforts by describing the interrelationships among financial 
management systems and how information is to flow from and through 
them, within and across agencies, and ensuring the validity of each 
agency's implementation approach. Even if FMLOB-related activities 
proceed as planned, efforts to address our recommendations related to 
this and other key concepts involve a variety of challenges which, in 
some cases, could take years to fully resolve. For example, according 
to FSIO officials, it may take as many as 15 years or more before 
software that incorporates the standard business processes currently 
under development is in use governmentwide. In addition, development of 
a migration timeline reflecting agencies' commitment to migrating to 
shared service providers has not yet been completed. OMB officials 
stated that a draft migration timeline as well as a draft concept of 
operations have been developed and are under internal review. Until OMB 
finalizes these critical tools, the extent to which its efforts to date 
address our recommendations remains unclear. 

As previously reported,[Footnote 21] we believe OMB has correctly 
recognized that enhancing federal financial management systems needs to 
be addressed as a governmentwide solution, rather than individual 
agency stovepiped efforts designed to meet a given entity's needs. 
However, given the implications of this initiative and the extended 
time frames involved, we emphasize the need to expedite efforts to 
address our remaining recommendations. Such efforts are essential to 
help facilitate FMLOB implementation and achieve a more effective and 
timely realization of benefits. Achieving the goals of the FMLOB 
initiative and reducing the risks associated with continuing individual 
agency stovepiped efforts will depend, in part, on continued strong 
executive leadership and commitment and the effectiveness of efforts to 
address our recommendations and other challenges facing this 
initiative. 

Efforts Remain to Finalize a Concept of Operations: 

Given the far-reaching impact of the FMLOB initiative on governmentwide 
financial management systems, an effective governmentwide concept of 
operations that identifies the nature of and interrelationships among 
federal financial management systems is an essential tool to ensure 
that both system implementation and other FMLOB-related efforts achieve 
intended results. Although this initiative began in 2004, and we 
reported that efforts were under way to develop a concept of operations 
in our 2006 report,[Footnote 22] as shown in table 2, none of our four 
prior recommendations related to this area have been completely 
addressed. Further, developing a concept of operations was not included 
as a priority in OMB's January 2008 memorandum to agency CFOs[Footnote 
23] that summarized FMLOB priorities through December 2009. OMB 
officials stated that a draft concept of operations is in internal 
review; however, they did not provide us an estimated date for its 
completion. OMB officials stated that finalizing a concept of 
operations has been a challenge due to limited resources available to 
devote to this effort, as well as the need to ensure that the various 
elements of a concept of operations are appropriately linked to 
relevant guidance, policy documents, and requirements such as the core 
financial system requirements. We agree with OMB's recognition of this 
need and believe it helps to illustrate the importance of finalizing 
this critical tool. Given the importance of articulating how the shared 
service provider concept fits into the overall federal financial 
management system framework and how systems operated at the agency and 
governmentwide level should be integrated, we believe efforts should be 
taken to expedite the completion of a clear concept of operations. 

Table 2: GAO Recommendations--Concept of Operations: 

Recommendation: Develop a concept of operations; 
Status: Not completed. 

Recommendation: Identify the interrelationships among federal financial 
systems and how the application service provider concept fits into this 
framework; 
Status: Not completed. 

Recommendation: Prescribe which financial management systems should be 
operated at an agency level and which should be operated at a 
governmentwide level and how those would integrate; 
Status: Not completed. 

Recommendation: Define financial management systems in the Federal 
Enterprise Architecture (FEA) to be more consistent with the similar 
definitions used in FFMIA and OMB Circulars No. A-11 and No. A-127; 
Status: Not completed. 

Recommendation: Total; 
Status: Completed: 0; 
Status: Not completed: 4. 

Sources: GAO analysis, OMB and FSIO data. 

[End of table] 

OMB and FSIO officials, as well as knowledgeable officials from other 
selected organizations, and our recent work related to financial 
management system implementations, confirm the need for an effective 
governmentwide concept of operations to guide FMLOB efforts. For 
example, identifying the interrelationships among financial management 
systems within and across agencies would help to identify and avoid 
additional stovepiped efforts designed to meet their unique needs when 
common solutions to address their common needs are more effective. A 
clear understanding of the flow of information from and through these 
systems is also needed to ensure that the FMLOB initiative goal of 
providing accurate and timely data for decision making is achieved. 

The federal government is one of the largest and most complex 
organizations in the world and its agencies use a variety of financial 
management systems and other systems that interrelate with them to meet 
their needs. As a result, defining the nature and scope of the systems 
involved in transformation initiatives, such as FMLOB, is an important 
aspect for ensuring that efforts are properly aligned and focused 
toward meeting clearly articulated goals. Officials at the Department 
of Defense's (DOD) Business Transformation Agency considered this a 
critical element of the lessons they learned in achieving progress 
toward developing a framework for DOD efforts to transform a multitude 
of business systems[Footnote 24] to better meet its financial 
management needs. We concur with this assessment and, as we testified 
in February 2008,[Footnote 25] we believe DOD is making progress toward 
establishing a framework to guide its business transformation efforts. 

While we are in broad agreement with the goals of OMB's FMLOB 
initiative, it appears that OMB is not looking broadly enough as it 
frames its efforts. According to OMB and FSIO officials, FMLOB-related 
efforts are initially focused on addressing agency core financial 
systems needs and therefore may not currently fully address the 
existing interrelationships between core financial systems and the 
financial portion of mixed systems.[Footnote 26] Recent revisions to 
OMB's Circular No. A-127 issued in January 2009 confirm our concerns 
that the importance of these interrelationships is not adequately 
incorporated into OMB's approach. Specifically, OMB's revised guidance 
states that federal financial management system requirements for 
determining substantial compliance with FFMIA include computer security 
requirements and internal controls as well as FSIO core financial 
system requirements but explicitly do not include the existing 
financial management systems requirements related to mixed systems. 
[Footnote 27] 

Due to the magnitude of efforts and challenges associated with 
modernizing financial management systems across government, 
knowledgeable officials at other selected organizations we spoke with 
stated that focusing on addressing agency core financial system needs 
first may be appropriate. Nonetheless, an essential part of developing 
an effective, comprehensive concept of operations includes identifying 
the interrelationships between core financial systems and other 
systems, such as payroll or inventory systems, which perform financial 
functions. In addition, agencies are increasingly considering the use 
of large, complex, and costly enterprise resource planning (ERP) 
programs to provide an integrated solution for addressing both 
financial and mission-related business needs. DOD, in particular, has 
been making significant investments in a number of ERPs to take 
advantage of the enterprisewide features that address various financial 
management and other business needs. We have reported[Footnote 28] 
that, as envisioned, DOD's Navy ERP program is expected to cost 
approximately $2.4 billion over its 20-year life cycle and to be fully 
operational in fiscal year 2013. As we previously reported, a concept 
of operations should have a clear definition and scope of the financial 
management activities to be included and identify the 
interrelationships of core financial and other systems such as ERPs. 

The ability to properly align governmentwide and agency efforts also 
depends, in part, upon the availability of effective concepts of 
operations at the governmentwide level as well as the agency level. We 
have reported[Footnote 29] the lack of adequate concepts of operations 
associated with agency financial management system projects, including 
selected projects at the Army, the Department of Homeland Security 
(DHS), and the Department of the Treasury. For example, in connection 
with the Army's efforts to achieve total asset visibility, we reported 
[Footnote 30] that, without a concept of operations, the Army is 
hindered in its ability to apply an enterprise view in (1) making 
decisions as to how certain systems will individually and collectively 
enhance the Army's asset accountability and (2) determining what 
changes are needed in its related business processes. As a result, we 
also reported that the Army failed to take advantage of business 
process reengineering opportunities, perpetuating the use of some of 
its cumbersome and ineffective business processes used in existing 
legacy systems. 

Finally, participants at a Comptroller General's forum[Footnote 31] 
held in December 2007 on improving federal financial management systems 
confirmed our concerns regarding the need for a concept of operations, 
pointing out that OMB's various lines of business initiatives[Footnote 
32] are serving to preserve existing stovepipes. For example, 
participants said it is unclear why separate lines of business are 
needed for budget and financial management. OMB officials stated that 
FSIO has been working with OMB staff knowledgeable of the federal 
enterprise architecture (FEA)[Footnote 33] to better understand and 
document the relationships between mixed and core financial systems as 
well as communicate with the various lines of business initiatives and 
help ensure they are effectively coordinated. 

OMB's Current Priorities Focus on Standardization and Transparency: 

Adopting standardized processes is a fundamental step needed for all 
financial management system implementations. Recognizing the importance 
of this step in connection with implementing the FMLOB initiative, we 
made five recommendations,[Footnote 34] as shown in table 3, related to 
identifying, defining, and implementing standard business processes to 
help facilitate greater efficiency and consistency, lower the cost, and 
improve the quality and performance of financial management operations 
across government. OMB and FSIO efforts have effectively addressed two 
of our five recommendations by encouraging agencies to embrace, and 
requiring shared service providers to adopt, standard business 
processes in support of the FMLOB initiative. For example, in a July 
2008 memorandum,[Footnote 35] OMB encouraged the federal financial 
management community to begin preparations for adopting standard 
business processes by taking several actions, including using such 
processes as a framework for system implementation projects. 

Much work remains before the standard business processes needed to 
realize the goal of optimizing financial management practices across 
government become operational. According to FSIO officials, the process 
of developing the first set of standard business processes and 
incorporating them into software products certified as meeting FSIO 
core financial system requirements may take up to 3 years to complete 
under existing plans. We also recognize that incorporating standard 
business processes into operational systems will be a much longer-term 
effort since OMB is not requiring agencies to consider migrating to a 
shared service provider until upgrading to the next major release of 
their core financial systems, and adoption of these standards is not 
required until migration occurs. Accordingly, FSIO officials stated it 
may take up to 15 years to incorporate the standards currently under 
development into software, subsequently test and certify the software, 
and implement the certified software governmentwide. According to OMB 
officials, this approach reflects OMB's recognition of the long-term 
nature of agency modernization efforts and the need to provide agencies 
time to adequately assess FMLOB migration risks. 

Table 3: GAO Recommendations--Standard Business Processes: 

Recommendation: Define standard business processes; 
Status: Not completed. 

Recommendation: Describe the standard business processes that are 
needed to meet federal agencies' needs; 
Status: Not completed. 

Recommendation: Develop a process to identify those business processes 
that are needed to meet unique agency needs; 
Status: Not completed. 

Recommendation: Require application service providers to adopt standard 
business processes to provide consistency; 
Status: Completed. 

Recommendation: Encourage agencies to embrace new processes; 
Status: Completed. 

Recommendation: Total; 
Status: Completed: 2; 
Status: Not completed: 3. 

Sources: GAO analysis, OMB and FSIO data. 

[End of table] 

Due to the wide array of current business processes in use across 
agencies to address common and agency-specific needs, OMB and FSIO 
officials acknowledge that developing standard business processes that 
can be used across all federal agencies is a significant challenge. 
Thus far, their efforts to increase standardization have resulted in 
the development and issuance of three standard business processes, and 
OMB expects two more to be finalized by September 2009.[Footnote 36] In 
a January 2008 memorandum to agency CFOs,[Footnote 37] OMB acknowledged 
that efforts during the transparency and standardization stage of the 
FMLOB initiative have taken longer than expected. However, OMB added 
that the additional time has allowed for the preparation of more 
comprehensive material and greater buy-in and support for the 
initiative. Nonetheless, expediting efforts to address our prior 
recommendations related to standard business processes is essential 
since the ability to operationalize these standards, and begin 
realizing their benefits, depends on their completion. 

The extended time frame for implementing the FMLOB initiative involves 
other challenges, such as responding to changes in stakeholder needs or 
new financial reporting requirements. For example, FSIO officials 
stated that financial management systems currently used to compile and 
report financial information on a governmentwide level will face unique 
transition-related challenges as agencies begin to use systems that 
incorporate the recently developed common governmentwide accounting 
classification structure and FMLOB-compliant standard business 
processes. Specifically, modernization efforts under way at Treasury 
will need to ensure that certain centralized systems will receive, 
process, report, and transmit financial data to and from these 
agencies' systems. In addition, these centralized Treasury systems will 
need to continue to interface with and convert information received 
from agency legacy systems to ensure the overall consistency of 
consolidated information used for government financial reporting and 
other purposes. To ensure that these issues are properly identified and 
managed during the transition period, FSIO officials stated that they 
are working with Treasury data architects to facilitate the data 
standardization effort and develop a joint plan that includes Treasury 
system update milestones. However, these challenges and the risks 
associated with agency legacy systems that produce financial management 
information using inconsistent business processes will continue until 
the standardization envisioned by the FMLOB initiative is actually 
implemented across the federal government. 

Migration Strategy Developed, but Timetable for Migration Is Unclear: 

Recognizing the historical tendency for agencies to view their needs as 
unique and resist standardization, we made five 
recommendations,[Footnote 38] as shown in table 4, related to 
developing a strategy for ensuring that agencies are migrated to a 
limited number of shared service providers. OMB has effectively 
addressed two of these recommendations, including developing guidance 
to assist agencies in their migration efforts. In addition, OMB has 
taken steps toward addressing the remaining three recommendations in 
this area related to developing a migration strategy, articulating a 
clear goal and criteria for ensuring that agencies are migrated, and 
developing a timeline, or migration path, for when agencies should 
migrate to a shared service provider. However, efforts to develop such 
a timeline are taking longer than expected and this important tool has 
not yet been finalized. Until a reliable, detailed timetable for 
migrations across the federal government is developed, the ability to 
assess when governmentwide migrations will be completed remains 
limited. 

Table 4: GAO Recommendations--FMLOB Migration Strategy: 

Recommendation: Develop a strategy for ensuring that agencies are 
migrated to a limited number of application service providers in 
accordance with OMB's stated approach; 
Status: Not completed[A]. 

Recommendation: Articulate a clear goal and criteria for ensuring 
agencies are subject to the application service provider concept and 
cannot continue developing and implementing their own stovepiped 
systems; 
Status: Not completed[A]. 

Recommendation: Establish a migration path or timetable for when 
agencies should migrate to an application service provider; 
Status: Not completed. 

Recommendation: Provide the necessary information for an agency to 
select an application service provider; 
Status: Completed. 

Recommendation: Develop guidance to assist agencies in adopting a 
change management strategy for moving to application service providers; 
Status: Completed. 

Recommendation: Total; 
Status: Completed: 2; 
Status: Not completed: 3. 

Sources: GAO analysis, OMB and FSIO data. 

[A] Although OMB has developed a migration strategy and articulated its 
goal that agencies are subject to the application service provider 
concept, we are deferring our final assessment of these recommendations 
until we complete a more in-depth analysis as part of our planned 
follow-on work. 

[End of table] 

As previously noted, we plan to address key issues related to OMB's 
migration strategy in the second phase of our work and therefore are 
deferring an assessment of OMB's efforts in this area. Specifically, we 
plan to review the implementation of OMB's strategy at shared service 
providers and agencies involved in migration activities during the next 
phase of our work. OMB's Competition Framework for FMLOB Migrations 
(Competition Framework) and Migration Planning Guidance, provided 
important guidance to agencies to support and facilitate shared service 
provider migration activities. This guidance includes principles 
agencies must use when acquiring new financial management systems and 
best practices for managing organizational changes and developing 
effective change management strategies to ensure that migrations 
achieve intended results. Agencies are required to comply with OMB's 
stated migration strategy and OMB relies, in part, on information 
agencies provide with their budget submissions to ensure they are 
planning their migration activities accordingly. In addition, OMB 
officials stated that they hold meetings with agencies to discuss this 
and other information regarding FMLOB-related activities such as the 
life cycle of existing agency financial management systems, IT 
investment plans, and ongoing migration activities. 

While we plan to perform an in-depth analysis of OMB's strategy as part 
of our follow-on work, we found that additional efforts are needed to 
develop a timeline for agency migrations, as well as efforts to 
continue refining and developing additional tools to facilitate the 
effectiveness of agency efforts. A migration timeline reflecting 
agencies' IT investment plans that are aligned with existing financial 
management system life cycles and their commitment toward migrating 
their financial management systems to shared service providers would 
help to ensure that agencies do not continue developing and 
implementing their own stovepiped systems. Such a timeline would 
provide greater assurance that the migrations will actually occur as 
planned and help guide and assess governmentwide progress. OMB 
officials told us they are working with agencies to develop an overall 
migration timeline and expected to have it in place by the end of 2008. 
However, this important tool has not yet been finalized and OMB could 
not provide an estimated completion date. As a result, the reliability 
of targets reported by OMB[Footnote 39] for migrating agencies, 
including its February 2008 estimate[Footnote 40] that many migrations 
are expected through 2015, is unclear. In addition to a migration 
timeline, FSIO and OMB officials acknowledged that agencies need 
additional migration guidance and tools in more specific areas that 
will further improve the efficiency and effectiveness of agency 
migration activities--such as tools for navigating the acquisition 
process for shared financial services, providing templates for 
developing agency service-level agreements, and providing agencies with 
change management support and training. 

Additional Actions Needed in Defining and Implementing Disciplined 
Processes: 

To help reduce the risks associated with financial management system 
implementations, we highlighted the importance of incorporating 
disciplined processes into implementation efforts and made four 
recommendations,[Footnote 41] as shown in table 5, to ensure that they 
are more effectively used to properly manage and oversee specific 
projects. OMB has issued guidance, such as the Competition Framework 
and the Migration Planning Guidance, which effectively addresses our 
recommendation to provide a standard set of practices to guide 
migrations from legacy systems to new systems and shared service 
providers. Additional efforts are needed to fully address the remaining 
three recommendations in this area. 

Table 5: GAO Recommendations--Disciplined Processes: 

Recommendation: Define and ensure agencies effectively implement 
disciplined processes necessary to properly manage the specific 
projects; 
Status: Not completed. 

Recommendation: Provide specific guidance to agencies on disciplined 
processes for financial system implementations; 
Status: Not completed. 

Recommendation: Provide a standard set of practices to guide the 
migrations from legacy systems to new systems and application service 
providers; 
Status: Completed. 

Recommendation: Develop processes to facilitate oversight and review 
that allow for a more structured review and follow-up of agencies' 
financial system implementation projects; 
Status: Not completed. 

Recommendation: Total; 
Status: Completed: 1; 
Status: Not completed: 3. 

Sources: GAO analysis, OMB and FSIO data. 

[End of table] 

OMB officials expressed the belief that existing guidance provides 
sufficient descriptions and requirements to agencies involved in 
federal IT capital investment projects and system implementations 
regarding the use of disciplined processes. Further, they stated that 
additional guidance is not needed since agencies will be migrating to 
an established shared service provider with a proven track record and 
would therefore incorporate the disciplined processes used by the 
provider, which would reduce or eliminate the traditional project 
management tasks associated with system implementations. Although the 
use of such providers may help reduce risks related to core financial 
system migrations, this position does not address the need for more 
effective guidance to clearly communicate the extent to which agencies 
are required to ensure that disciplined processes are incorporated into 
all financial management system implementations. Our review of OMB 
guidance indicates that its existing guidance does not adequately 
define specific disciplined processes nor adequately specify agency 
requirements concerning their use in connection with financial 
management system implementations. For example, our analysis of OMB 
guidance related to requirements management, risk management, data 
conversion, and testing activities that agencies should follow during 
system implementations shows that the guidance describes the purpose 
and high-level descriptions of these activities, but does not 
adequately describe and provide sufficient guidance regarding the 
methods agencies could use to incorporate certain critical disciplined 
processes into their implementation efforts. 

For example, sound requirements management processes, in part, should 
ensure that requirements[Footnote 42] are stated in clear terms that 
allow for quantitative evaluation and traceability among various 
requirements documents. With regard to traceability, OMB guidance 
[Footnote 43] states that "a complete set of requirements that maintain 
traceability throughout the Design, Development and Testing phases will 
contribute to the system's success." However, this and other OMB 
guidance does not provide detailed guidance on how agencies are to 
ensure traceability is to be attained (e.g., through the use of a 
requirements traceability matrix) nor does it include specific guidance 
requiring test plans to include links to the specific requirements they 
address. 

For data conversions, OMB guidance does not address the need to 
consider specific issues that apply uniquely to converting data as part 
of the replacement of a financial system, such as identifying specific 
open transactions and balances to be established through automated or 
manual processes, as well as using different conversion options 
[Footnote 44] for different categories of data. Data conversion issues 
can also result in problems beyond financial reporting such as those we 
previously reported in June 2005[Footnote 45] in connection with the 
Army's implementation of its Logistics Modernization Program (LMP) 
involving excess items being ordered and shipped to one of its depots. 
Specifically, we noted that three truckloads of locking washers (for 
bolts) were mistakenly ordered and received, and subsequently returned, 
because of data conversion problems. 

Further, the guidance does not specifically address or require agencies 
to incorporate characteristics typically found in successful 
disciplined testing efforts, such as processes that ensure test results 
are thoroughly inspected and test cases that include exposing the 
system to invalid and unexpected conditions. Without specific guidance 
on the use of these and other disciplined processes during financial 
management system implementations, agency projects may not achieve 
their intended results within established resources (costs) and on 
schedule. 

In addition to guidance, officials at OMB, FSIO, and other 
organizations cited challenges associated with the lack of appropriate 
resources to ensure disciplined processes are implemented in connection 
with financial management system projects. For example, officials at 
FSIO and DOD's Business Transformation Agency told us that agencies do 
not always maintain or involve internal staff with appropriate system 
implementation and business process expertise needed to ensure 
successful implementations. Further, according to OMB officials, OMB's 
ability to perform detailed implementation oversight reviews on all 
financial management system projects continues to be hampered due to 
the limited staff available to perform them. Although we recognize this 
challenge, we continue to believe that proper oversight should entail 
verification that disciplined processes are, in fact, incorporated into 
these projects in order to maximize their likelihood of success. 

As we previously reported,[Footnote 46] requiring agencies to have 
their financial management system projects undergo independent 
verification and validation reviews could provide an alternative means 
for ensuring agencies are incorporating disciplined processes into 
these projects. According to OMB officials, they do not need to require 
agencies to use independent verification and validation as a tool 
because most large agencies are already using independent verification 
and validation contractors to monitor large system implementations. In 
addition, OMB officials said they do not believe it would be 
appropriate to require all system implementations to use independent 
verification and validation contractors since they may not be cost- 
justified on smaller, less complex projects. OMB officials stated that 
they rely, in part, on activities OMB performs in connection with 
assessing projects for inclusion on its Management Watch List and High 
Risk List to identify projects having implementation risks needing 
further attention. 

As described in more detail in the next section of this report, while 
Management Watch List and High Risk List related activities are 
designed to identify planning and performance deficiencies and provide 
useful information to assist OMB in monitoring IT modernization 
projects, they do not provide for an adequate assessment of the extent 
to which agencies are incorporating disciplined processes to better 
manage financial management system modernization projects. Further, we 
continue to believe that verifying that projects adequately incorporate 
disciplined processes, whether performed by an independent verification 
and validation contractor or otherwise, is an essential aspect of 
effectively overseeing financial management system implementation 
projects to ensure the risks associated with these projects are managed 
to acceptable levels. 

Other Challenges and Risks Highlight Importance of Continued Strong 
Commitment: 

FMLOB implementation efforts are affected by other broad and 
crosscutting issues related to the overall federal financial management 
environment such as ensuring the availability of sufficient resources 
and federal financial management human capital strategies, and 
addressing the myriad of weaknesses in existing systems across federal 
agencies. Given the potential far-reaching impact of the FMLOB 
initiative on governmentwide financial management systems, continued 
strong commitment and leadership is essential to ensure that progress 
continues and the FMLOB goals are achieved. 

As we recently reported,[Footnote 47] the federal government is taking 
unprecedented actions to restore stability to the financial markets 
that will likely have a significant effect on the federal government's 
financial condition. As our nation works through these and other fiscal 
challenges, difficult choices and trade-offs involving the use of 
significant resources will be unavoidable. The knowledgeable officials 
at OMB, FSIO, and other organizations we spoke with generally agree 
that securing the resources needed to achieve FMLOB initiative goals 
will be an ongoing challenge. 

Similarly, the officials we spoke with generally agreed that agencies 
face challenges associated with skills, knowledge, and experience 
imbalances in their workforce which, without corrective action, are 
expected to worsen in light of anticipated retirements of federal 
civilian workers in coming years. In this respect, our work at 
Treasury, DOD, DHS, and other agencies has confirmed that problems 
associated with strategic workforce planning, human resources, and 
change management have hampered financial management operations and 
system implementations and help to illustrate that the federal 
financial management workforce supporting the business needs of today 
is not well positioned to meet the needs of tomorrow. Participants at a 
Comptroller General's forum[Footnote 48] suggested that federal 
financial management human capital strategies could be better focused 
on attracting and retaining a new technology-savvy generation of 
financial professionals. However, FSIO officials noted that they 
believe the FMLOB-related efforts to standardize business processes, 
operate financial management systems through shared service solutions, 
and provide training materials and change management support will help 
mitigate the growing shortage of federal financial management human 
capital. As we previously reported,[Footnote 49] effective human 
capital management is critical to the success of systems 
implementations and the extent to which these and other efforts will 
lead to having staff with the appropriate skills is key to achieving 
financial management improvements. 

In addition, in connection with our efforts to report annually on the 
implementation status of FFMIA, we continue to report[Footnote 50] that 
assessments for the 24 CFO Act agencies illustrate that agencies still 
do not have effective financial management systems, including 
processes, procedures, and controls in place that can routinely produce 
reliable, useful, and timely financial information that federal 
managers can use for day-to-day decision-making. Further, problems at 
some agencies, such as DOD and DHS, are so severe and deep-rooted that 
we have designated their transformation efforts as high risk due to 
financial management and business practices that adversely affect their 
ability to control costs, ensure basic accountability, measure 
performance, and meet other financial management needs. Against the 
backdrop of our nation's long-term fiscal imbalance, addressing these 
issues represents key challenges to fully realizing the world-class 
financial management anticipated by Congress through the enactment of 
federal financial management reform legislation as well as FMLOB 
initiative goals. 

Given the broad spectrum of challenges associated with modernizing 
federal financial management systems, strong leadership and commitment 
of OMB, FSIO, and other key FMLOB stakeholders are especially important 
to ensure that needed improvements are achieved. Knowledgeable 
officials from the other selected organizations we interviewed 
generally agreed that the success of the FMLOB initiative will depend, 
in part, on OMB's ability to lead the multifaceted efforts of many 
stakeholders toward achieving effective, common, financial management 
system solutions over a long period of time. We concur with this 
position and believe additional attention and efforts toward addressing 
our prior recommendations, as well as continuing careful consideration 
of the significant challenges, will serve to facilitate the 
implementation of this important initiative. 

Previously Identified Weaknesses Continue to Hamper OMB Oversight of 
Financial Management System Modernization Projects: 

Since 2005, we have made various recommendations[Footnote 51] to OMB 
aimed at improving its oversight of agency financial management system 
modernization and other IT projects. OMB has yet to take sufficient 
actions to fully address these recommendations, despite the critical 
role of OMB oversight, established in various statutes,[Footnote 52] in 
helping to ensure the success of agency modernization efforts. In 
addition, OMB has yet to resolve challenges we previously reported on 
the need to capture the costs of all financial management system 
investments in order to better evaluate agency modernization efforts. 
Achieving FMLOB goals requires effective OMB oversight of agency 
modernization projects. Until the weaknesses we previously reported are 
fully addressed, the FMLOB initiative and agency financial management 
system modernization efforts remain at increased risk of not meeting 
their intended goals. 

Actions Still Needed to Address Prior Recommendations Related to 
Oversight of Financial Management System Modernization and Other IT 
Projects: 

Although OMB has taken steps to address some of the oversight-related 
recommendations we have made since 2005, it has yet to fully address 
them. For example, OMB has updated the criteria used to identify high- 
risk projects and issued various guidance such as the Migration 
Planning Guidance issued in September 2006 that provides useful 
instruction to agencies on managing system modernization projects as 
well as the risks associated with migrating to shared service 
providers. However, OMB has not yet fully addressed our prior 
recommendations aimed at maximizing the use of the Management Watch 
List and High Risk List as tools that facilitate its oversight and 
review of IT projects including financial management system 
modernization efforts. Further, as indicated in the previous section of 
this report, OMB has not yet fully addressed our prior recommendations 
related to disciplined processes[Footnote 53] including defining and 
providing specific guidance to agencies on disciplined processes, 
developing processes to facilitate oversight and review of agencies' 
financial system implementation projects, and ensuring that agencies 
effectively implement disciplined processes.[Footnote 54] 

OMB oversight efforts include assessing financial management system and 
other IT investments using specific criteria to evaluate business cases 
and determine whether they represent high-risk projects. OMB includes 
agency projects warranting additional oversight and management 
attention based on these assessments in its quarterly Management Watch 
List and High Risk List. While OMB has taken steps to more effectively 
use the Management Watch List and High Risk List as oversight tools, 
additional actions are needed to fully address our prior 
recommendations and further improve its oversight of agency IT 
projects.[Footnote 55] For example, although OMB performed 
governmentwide and agency-specific analyses of Management Watch List 
projects' deficiencies in 2008, it needs to continue to use this list 
to prioritize projects needing follow-up and to report to Congress on 
management areas needing attention. In addition, OMB has yet to 
publicly disclose the deficiencies, if any, associated with projects 
included in the High Risk List. Disclosing these deficiencies would 
allow OMB and others to better analyze the reasons projects are poorly 
performing, identify management issues and other root causes that 
transcend individual agencies, and evaluate corrective actions. 
Further, OMB's criteria for assessing projects and determining which 
are to be included on these quarterly lists does not adequately address 
the need to assess whether agencies have, in fact, implemented the 
necessary disciplined processes to help ensure their success. 

As previously discussed, OMB officials stated that their reviews of 
agency financial management system modernization projects do not 
generally focus on the extent to which agencies are following 
disciplined processes and that OMB does not have sufficient resources 
to conduct such reviews. According to OMB officials, its reviews of 
financial management systems and related modernization efforts focus 
primarily on agencies' compliance with the requirements of FFMIA and 
ensuring that effective remediation plans are developed and implemented 
to address identified FFMIA deficiencies. Reviewing these projects to 
monitor whether FFMIA deficiencies are addressed is important; however, 
such efforts do not provide adequate assurance that agencies are using 
disciplined processes to manage their projects. Such assurance is 
critical since our work and that of others has shown that agency 
modernization failures have often been due, in part, to not adhering to 
disciplined processes during system implementation efforts. Until the 
weaknesses we previously reported are fully addressed, the FMLOB 
initiative and agency financial management system modernization efforts 
remain at increased risk of not meeting their intended goals. 

OMB Oversight Efforts Do Not Adequately Capture and Consider Spending 
on Financial Management System Modernization Projects: 

In 2006, we reported[Footnote 56] that one of the key challenges OMB 
faces when evaluating financial management system modernization efforts 
is capturing all financial management system investments and their 
related costs. Capturing and reporting useful spending information 
continues to be a challenge due, in part, to the way in which agencies 
categorize projects according to existing OMB guidance. As a result, 
the ability to fully consider the risks associated with financial 
management system modernization projects and more effectively focus 
oversight activities is adversely affected. 

In April 2008, OMB reported[Footnote 57] that agencies planned to spend 
$925 million on financial management systems modernizations for fiscal 
year 2009. However, the methodology OMB used to report this overall 
governmentwide estimate did not provide a complete and accurate measure 
of spending on these projects. Specifically, agencies are required to 
indicate certain FEA categories that each project relates to in 
connection with their exhibit 53 submissions. While OMB's estimate of 
agencies' planned spending includes amounts related to five of these 
categories, it does not take into account certain types of mixed 
systems that support financial management activities, such as those 
related to supply chain management.[Footnote 58] For example, even 
though DOD's Navy ERP project is a business system with many integrated 
financial management functions, OMB's estimate did not include any of 
the $112 million planned to be spent on this project in fiscal year 
2009 because it was identified as a supply chain management project. 

For projects involving mixed systems such as the Navy ERP, OMB guidance 
requires agencies to provide the percentage of planned spending on 
projects associated with the financial portion of these systems related 
to their budget request for the next fiscal year.[Footnote 59] However, 
such percentages were not incorporated in the methodology for 
estimating planned agency spending on financial management systems for 
fiscal year 2009. In addition, OMB guidance does not require agencies 
to specify the amount that was actually spent on the financial portion 
of mixed system projects in prior and current years. Further, on the 
basis of our review of spending data for two selected agencies, the 
reliability of information reported by agencies is unclear. 
Specifically, these two agencies interpreted OMB's guidance differently 
and, as a result, used inconsistent methodologies for determining the 
percentages they reported. OMB officials informed us that they are 
reviewing the guidance related to estimating financial management 
system percentages to determine whether additional data or 
clarifications are needed. OMB officials also stated that they were 
uncertain as to whether focusing significant efforts in this area would 
provide useful information or be an appropriate use of resources that 
should be focused on potentially more important priorities. 

We agree that managing and evaluating mixed system projects in many 
cases may not involve focusing on the financial portion of mixed 
systems on a stand-alone basis. However, OMB's current processes for 
obtaining and reporting agency spending on financial management system 
modernization efforts does not provide sufficient information to 
facilitate an adequate evaluation of their financial risks. An 
effectively designed risk-based approach for focusing limited financial 
management oversight resources should take into consideration the 
relative risks associated with all modernization projects that support 
financial management functions. Further, focusing efforts on helping to 
ensure the success of large mixed system projects that involve 
significant financial management-related portions versus other less 
costly financial management system modernization projects may be a 
prudent course of action and may help justify the need for additional 
resources to address the risks they represent. 

Spending data highlighting the investments being made on different 
types of financial management system modernization projects, including 
core financial systems and mixed systems with significant financial 
management components, would help efforts to evaluate the relative 
magnitude of--and risks associated with--agency efforts in these areas. 
Until OMB efforts to obtain and report spending on financial management 
system modernization projects and related guidance take into account 
the need for information to better evaluate the relative risks 
associated with these investments, the ability to effectively align 
oversight activities based on these risks will be adversely affected. 

Conclusions: 

OMB's FMLOB initiative represents an important step toward improving 
the outcome of financial management system modernization efforts so 
that agencies have systems that generate reliable, useful, and timely 
information for decision-making purposes. Although OMB continues to 
make progress in addressing our prior recommendations to help ensure 
the success of this initiative, much work remains. Specifically, 13 of 
the 18 recommendations we made on integrating four key building blocks 
into FMLOB implementation efforts have yet to be fully addressed. 
Without an effective concept of operations providing the foundation to 
guide FMLOB-related activities, efforts to modernize federal financial 
management systems are at an increased risk of not fully achieving 
their goals. Further, addressing many of our recommendations will 
require extensive work to complete remaining development activities 
and, more importantly, actually place them into operation to achieve 
the federal financial management framework envisioned. In addition, 
despite its critical role in overseeing agency financial management 
systems modernization efforts, OMB has not yet fully addressed our 
oversight-related recommendations, including assessing whether agencies 
have incorporated disciplined processes into their modernization 
efforts, fully using its Management Watch List and High Risk List to 
more effectively oversee projects, and reporting to Congress. Across 
the federal government, agencies have financial management system 
modernization efforts under way and the success of these efforts will 
depend on OMB's and agencies' efforts to ensure that disciplined 
processes are effectively used to help reduce the risk of system 
implementation failures. Therefore, we reaffirm the need for OMB to 
expedite its efforts to fully address the recommendations we have made 
in prior reports, including those dealing with specific oversight 
procedures to minimize their associated risk. OMB efforts to obtain and 
report information on how much agencies spend on modernizing federal 
financial management systems do not enable it or Congress to adequately 
understand and evaluate the risks associated with such projects. 
Consistent and diligent OMB commitment toward oversight, including 
efforts to incorporate appropriate spending data, will be critical to 
the overall success of efforts to modernize federal financial 
management systems. 

Recommendation for Executive Action: 

To assist oversight efforts specifically related to federal financial 
management systems, we recommend that the Director of OMB take actions 
to facilitate complete and accurate reporting of actual and planned 
spending related to financial management system modernization projects, 
including the financial portion of mixed systems that significantly 
support financial management functions, and make necessary changes in 
existing guidance to meet these needs. 

Agency Comments and Our Evaluation: 

We received written comments from the Deputy Controller of OMB on a 
draft of this report (these comments are reprinted in their entirety in 
appendix III). In its comments, OMB generally agreed with our 
recommendation to facilitate complete and accurate reporting of actual 
and planned spending related to financial management system 
modernization projects and described actions being taken to address 
this recommendation. OMB also provided technical comments on a draft of 
this report that we incorporated as appropriate. 

In its comments, OMB expressed concern with part of our recommendation 
directed at better capturing cost information specifically related to 
the financial portion of mixed systems and stated that it is evaluating 
the need for such information. According to OMB, its preliminary 
analysis shows that breakouts of this cost data would have limited 
value for decision making because such a distinction is highly 
subjective and would not likely change agencies' investment decisions. 
OMB did not provide the preliminary analysis for our review. OMB 
believes it would be more cost-effective to focus its resources on 
other, higher risk areas, such as finalizing the concept of operations. 
However, as discussed in our report, the resources devoted to the 
financial portion of mixed systems are significant and, although 
determining the amount of such resources may be subjective, we believe 
more effective OMB guidance and oversight could further improve the 
accuracy, consistency, and usefulness of such information. The 
implementation of mixed system projects is critical because these 
systems provide input to the core financial system and in some cases 
are the sole source of data needed by management to make informed 
decisions. OMB needs such cost information to effectively evaluate the 
risks associated with financial management system modernization 
projects, including mixed systems, thus ensuring that its oversight 
efforts are properly aligned to focus on those projects needing 
increased attention. 

We are sending copies of this report to the Ranking Member, 
Subcommittee on Federal Financial Management, Government Information, 
Federal Services, and International Security, Senate Committee on 
Homeland Security and Governmental Affairs, and the Chairman and 
Ranking Member, Subcommittee on Government Management, Organization, 
and Procurement, House Committee on Oversight and Government Reform. We 
are also sending copies to the Director of OMB and Director of FSIO. In 
addition, this report will be available at no charge on the GAO Web 
site at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact Kay Daly, Director, Financial Management and Assurance, who may 
be reached at (202) 512-9095 or dalykl@gao.gov, or Naba Barkakati, 
Chief Technologist, Applied Research and Methods, who may be reached at 
(202) 512-2700 or barkakatin@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made major contributions to this 
report are listed in appendix IV. 

Sincerely yours, 

Signed by: 

Kay L. Daly: 
Director, Financial Management and Assurance: 

Signed by: 

Naba Barkakati: 
Chief Technologist: 
Applied Research and Methods: 
Center for Engineering and Technology: 

[End of section] 

Appendix I: Scope and Methodology: 

To determine the Office of Management and Budget's (OMB) progress 
toward addressing our prior recommendations related to the financial 
management line of business (FMLOB) initiative, we reviewed relevant 
OMB and Financial Systems Integration Office (FSIO) policies, guidance, 
reports, and memorandums related to actions taken and actions remaining 
and interviewed key OMB and FSIO officials, including senior officials 
in OMB's Office of Federal Financial Management (OFFM) and Office of 
Electronic Government and Information Technology (E-Gov and IT). We 
also reviewed laws and regulations related to the FMLOB initiative and 
relevant prior GAO reports to identify and assess the risks and 
challenges associated with implementing the FMLOB initiative. (See the 
Related GAO Products list at the end of this report.) In addition, to 
obtain views on challenges related to implementing the FMLOB 
initiative, we interviewed OMB and FSIO officials as well as other 
officials from organizations involved in large business transformation 
initiatives and knowledgeable of federal financial management system 
improvement efforts and reviewed relevant reports from these 
organizations including the Financial Standards and Processes Division 
within the Department of Defense Business Transformation Agency, the 
Association of Government Accountants, and the National Academy of 
Public Administration. 

To determine how effective OMB monitors FMLOB and financial management 
system modernization projects, including those reported on its 
Management Watch List and High Risk List, we reviewed our prior reports 
specifically related to OMB efforts to improve the identification and 
oversight of projects on these lists and interviewed senior OMB OFFM 
and Office of E-Gov and IT officials on the nature and extent of 
efforts to monitor financial management system and other IT projects. 
To assess OMB's efforts to monitor agency spending on FMLOB and 
financial management system modernization projects, we reviewed and 
analyzed reports and data provided by OMB and selected agencies related 
to agency spending on IT projects. In assessing the reliability of 
spending amounts reported by agencies, we (1) reviewed relevant OMB 
policies, guidance, reports, and memorandums, (2) reviewed spending 
data submitted by agencies to OMB on their Agency IT Investment 
Portfolio (exhibit 53) as required by OMB Circular No. A-11, Section 
53, and (3) interviewed senior OMB OFFM officials to gain an 
understanding of their efforts to collect, analyze, and report agency 
spending on financial management system projects. In addition, we 
identified six agencies that reported the largest amounts of fiscal 
year 2007 spending for financial management-related modernization 
projects and interviewed officials from two of these agencies 
knowledgeable of efforts related to preparing and submitting agency 
exhibit 53s to OMB and whose reported fiscal year 2007 spending for 
financial management-related modernization projects represented 22 
percent of total federal agency spending on such IT projects.[Footnote 
60] We believe that the results of our analysis of data provided by the 
two agencies selected, combined with our analysis of guidance and data 
obtained from OMB, provide a sufficient basis for our conclusion that 
spending data submitted by agencies on the exhibit 53 are not reliable 
for purposes of accurately measuring agency spending on financial 
management system modernization projects. 

We conducted this performance audit from February 2008 through May 
2009, in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

We requested comments on a draft of this report from the Director, 
Office of Management and Budget, or his designee. Written comments from 
OMB are discussed in the Agency Comments and Our Evaluation section and 
reprinted in appendix III. We also received technical comments from 
OMB, which we incorporated as appropriate. 

[End of section] 

Appendix II: Status of Prior GAO Recommendations: 

This appendix provides a summary of the progress made by OMB, in 
conjunction with FSIO, in addressing prior GAO recommendations[Footnote 
61] related to the FMLOB initiative. In addition, this appendix 
provides our overall assessment and status of whether this progress 
fully addressed each recommendation and a summary of the remaining 
actions we believe are necessary to fully address those that have not 
yet been completed. 

Concept of operations: 

GAO recommendation: 1. Develop a concept of operations; 
Status: Not completed; 
Progress and remaining actions: Progress: 
* According to OMB officials, a draft FMLOB concept of operations 
(ConOps) has been developed; however, it has not yet been finalized and 
officials would not provide an estimate for when it will be completed. 
According to OMB officials, the FMLOB ConOps will initially focus 
primarily on core financial systems at the individual agency level. 
While this focus is important, the development of a ConOps describing 
the activities, needs, and interrelationships of core and noncore 
governmentwide financial management systems would assist in providing a 
valuable foundation for future financial management modernization 
efforts. Until this critical tool is finalized, the extent to which OMB 
efforts to date address this recommendation remains unclear; 
Remaining actions: 
* Finalize and issue a concept of operations document that includes the 
following components; 
- describes the operations that must be performed, who must perform 
them, and where and how the operations will be carried out; 
- clearly defines and describes the scope of financial management 
activities; 
- describes how the various elements of federal financial systems and 
mixed systems interrelate; 
- describes how information flows from and through these systems; and; 
- explains how financial management systems at the agency and 
governmentwide levels are designed to operate cohesively. 

GAO recommendation: 2. Identify the interrelationships among federal 
financial systems and how the application service provider concept fits 
into this framework; 
Status: Not completed; 
Progress and remaining actions: 
Progress: 
* Refer to recommendation 1 describing progress related to developing a 
ConOps that would describe the interrelationships among federal 
financial management systems and how financial management operations, 
including those performed by shared service providers, will be carried 
out. In addition, OMB Circular No. A-127, revised in January 2009, 
contains guidance on the use, selection, and monitoring of shared 
service providers. However, this revised guidance does not adequately 
reflect the critical interrelationships between core and noncore 
financial systems. Specifically, it states that noncore financial 
system requirements are not part of the requirements to be used for 
determining substantial compliance with the Federal Financial 
Management Improvement Act (FFMIA). This represents a significant 
change from prior guidance that implemented FFMIA Sections 803(a)[A] 
and 806b provisions requiring that all financial management systems be 
evaluated to determine compliance with applicable requirements. 
Excluding noncore financial management systems from the scope of these 
provisions raises significant questions on how these systems will be 
evaluated in the future and the level of assurance that noncore systems 
provide reliable, timely, and useful financial information; 
Remaining actions: 
* Refer to recommendation 1 describing remaining actions related to 
developing a ConOps which, among other things, describes the 
interrelationships among federal financial management systems and how 
financial management operations, including those performed by shared 
service providers, should be carried out. 

GAO recommendation: 3. Prescribe which financial management systems 
should be operated at an agency level and which should be operated at a 
governmentwide level and how those would integrate; 
Status: Not completed; 
Progress and remaining actions: 
Progress: 
* Refer to recommendation 1 describing progress related to developing a 
ConOps that would describe the interrelationships among federal 
financial management systems, including how systems operated at the 
agency and governmentwide levels should operate cohesively; 
* According to an OMB January 2008 memorandum,[C] in connection with 
financial management modernization efforts, federal agencies will only 
be permitted to acquire, and shared service providers allowed to 
implement, software products that are certified as meeting FSIO core 
financial systems requirements. Migration Planning Guidance issued in 
September 2006 provides additional guidance on the services and systems 
offered by shared service providers on behalf of agencies; 
* According to OMB officials, an FMLOB Segment Architecture[D] is being 
developed to align with the Federal Enterprise Architecture (FEA) 
Reference Modele and will provide additional clarification on the 
integration of financial management systems; 
Remaining actions: 
* Refer to recommendation 1 describing remaining actions related to 
developing a ConOps which, among other things, would describe the 
interrelationships among federal financial management systems, 
including how systems operated at the agency and governmentwide levels 
can operate cohesively; 
* Ensure that efforts to develop and issue an FMLOB Segment 
Architecture are appropriately aligned with a comprehensive financial 
management system ConOps. 

GAO recommendation: 4. Define financial management systems in the 
Federal Enterprise Architecture (FEA) to be more consistent with the 
similar definitions used in FFMIA and OMB Circulars No. A-11 and No. A- 
127; 
Status: Not completed; 
Progress and remaining actions: 
Progress: 
* Refer to recommendation 1 describing progress related to developing a 
ConOps that would clearly define and describe the scope of financial 
management activities and describe how the various elements of federal 
financial systems and mixed systems interrelate; 
* In addition, refer to recommendation 2 describing revised OMB 
Circular No. A-127 guidance on financial management systems; 
* According to OMB officials, the FMLOB Segment Architecture is being 
developed to align with the FEA Reference Model and proposed changes to 
increase FEA alignment with OMB Circular Nos. A-11 and A-127 will be 
submitted to the Federal CIO Council Architecture and Infrastructure 
Committee; 
Remaining actions: 
* Ensure that collective efforts to define financial management 
systems, including the development and issuance of the FMLOB Segment 
Architecture and future revisions to OMB Circular Nos. A-11 and A-127, 
effectively resolve inconsistencies in how they are defined in the FEA 
and FFMIA. 

Standard business processes: 

GAO recommendation: 5. Define standard business processes; 
Status: Not completed; 
Progress and remaining actions: 
Progress: 
* OMB, in conjunction with FSIO, has made progress towards developing 
standard business processes, including the issuance of the following 
guidance: 
- the common governmentwide accounting classification structure (July 
2007); 
- charge card data elements specification, which standardizes 
governmentwide requirements for data elements (December 2007); 
- payment and funds management standard business processes (July 2008); 
and; 
- receivable management standard business process (November 2008); 
* In addition, according to OMB's January 2008 memorandum[F] to agency 
chief financial officers (CFO), OMB projected that efforts to provide 
certain additional guidance on common governmentwide business 
standards, processes, data, and rules would be accomplished by December 
2009 including: 
- finalizing the reimbursables and reporting standard business 
processes; 
- updating the Core Financial Systems requirements to incorporate the 
business standards; and; 
- identifying and beginning the development of additional standards, 
such as interface data elements, to assist in lowering the risk and 
cost of implementing financial systems; 
Remaining actions: 
* Finalize and issue the business standards for reimbursables and 
reporting processes; 
* Update the Core Financial Systems and noncore systems requirements to 
incorporate the business standards; 
* Identify and develop additional common governmentwide business 
standards, processes, data, and rules, such as interface data elements, 
to assist in lowering the risk and cost of implementing financial 
systems. 

GAO recommendation: 6. Describe the standard business processes that 
are needed to meet federal agencies' needs; 
Status: Not completed; 
Progress and remaining actions: Progress: 
* Refer to recommendation 5 describing progress toward defining and 
developing standard business processes; 
* OMB, in conjunction with FSIO, issued Financial Management Systems 
Standard Business Processes for U.S. Government Agencies[G] in July 
2008, which describes the Standard Federal Financial Business Processes 
(SFFBP) intended to provide guidance for implementing efficient core 
financial business processes that are consistent across government. The 
SFFBPs include: 
- sequenced activities for core business processes; 
- business rules for governing the process steps; 
- data elements and definitions related to these business processes 
(e.g., information contained on an obligation such as document source 
and number, item number, price per item); and; 
- relationships among the data elements as they exist in the actual 
business activities; 
* While the SFFBP currently provides detailed descriptions, process 
steps, flowcharts, and other guidance for the payment, funds, and 
receivables management processes, descriptions of other standard 
business processes identified so far (i.e., reimbursables and 
reporting), as well as data objects and elements, have not yet been 
described. In addition, since the SFFBP focuses on core financial 
business processes, standard business processes associated with noncore 
financial business processes have not yet been described; 
Remaining actions: 
* Refer to recommendation 5 describing remaining action needed to 
identify and define standard business processes; 
* Develop, finalize, and issue descriptions of the business standards 
for reimbursables and reporting processes; 
* Identify, develop, and describe additional common governmentwide 
business standards, processes, data, and rules, such as interface data 
elements, including those needed to meet agencies' needs associated 
with noncore financial business processes. 

GAO recommendation: 7. Develop a process to identify those business 
processes that are needed to meet unique agency needs; 
Status: Not completed; 
Progress and remaining actions: 
Progress: 
* OMB Circular No. A-127, revised in January 2009, requires agencies to 
register approved exceptions to the standard configuration to meet 
their needs; 
Remaining action: 
* According to OMB officials, OMB's priority is to focus on 
governmentwide standard business processes that generally affect all 
agencies. Although OMB has not yet focused on developing standard 
business processes that meet unique agency needs, OMB must further 
develop its process to identify agencies' unique requirements and 
proceed to define standard business processes designed to meet them. 

GAO recommendation: 8. Require application service providers to adopt 
standard business processes to provide consistency; 
Status: Completed; 
Progress and remaining actions: 
Progress: 
* According to a January 2008 OMB memorandum,[H] once business 
standards have been completed, incorporated into core financial system 
requirements, and tested during the FSIO software qualification and 
certification process, agencies will only be permitted to acquire, and 
shared service providers allowed to implement, certified products as 
configured with the standards. Limiting the products that shared 
service providers can use to those that are configured to meet standard 
business processes effectively addresses this recommendation. 

GAO recommendation: 9. Encourage agencies to embrace new processes; 
Status: Completed; 
Progress and remaining actions: 
Progress: 
* See recommendation 8 describing progress related to incorporating 
standard business processes into core financial system requirements and 
requiring shared service providers to only use certified products 
configured with the standard. In addition, this memorandum requires 
agencies to adopt these standards when they move to a shared service 
provider; 
* In a July 2008 memorandum[I] announcing the issuance of certain 
standard business processes described in recommendation 5, OMB 
encouraged the financial management community, including federal 
agencies, to begin preparations for adopting standard business 
processes by (1) analyzing existing business practices and processes, 
(2) gaining an understanding of the standard federal financial business 
processes, (3) analyzing the gap between existing and future processes, 
and (4) using standard business processes as a framework for system 
implementation projects; 
* In addition, OMB's and FSIO's ongoing work with focus and working 
groups consisting of agency and other federal financial management 
community stakeholders to develop SFFBPs provides effective 
opportunities to help encourage agencies to develop and embrace 
standard business processes and performance measures. 

Migration strategy: 

GAO recommendation: 10. Develop a strategy for ensuring that agencies 
are migrated to a limited number of application service providers in 
accordance with OMB's stated approach; 
Status: Not completed; 
Progress and remaining actions: 
Progress: 
* See recommendation 2 describing revised OMB Circular No. A-127 on the 
use of shared service providers; 
* In a January 2008 memorandum,[J] OMB reiterated guidance contained in 
the Competition Framework for Financial Management Lines of Business 
Migrations (Competition Framework) issued in May 2006 requiring, with 
limited exception, an agency seeking to upgrade to the next major 
release of its current core financial management system or modernize to 
a different core financial management system to either migrate to a 
shared service provider or qualified private sector provider, or be 
designated as a shared service provider. An agency may rely on its in- 
house core financial management system operations without being 
designated as a shared service provider only if the agency demonstrates 
that its own operations represent a best value and lower risk 
alternative over the life of the investment; 
* OMB also issued Migration Planning Guidance in September 2006 to help 
agencies prepare for and manage a migration of their financial 
management system operations to a shared service provider. According to 
the Migration Planning Guidance, all agencies are expected to decide 
whether to migrate their technology hosting administration and 
application management to a shared service provider or to become a 
provider themselves within 10 years; 
* To help ensure that agencies are migrating in accordance with its 
stated approach, according to OMB officials, OMB uses information 
obtained from agencies, such as the life cycles of agencies' existing 
financial management systems and exhibit 300s, and through discussions 
specifically related to financial management systems which occur at 
least annually, or more frequently during active migration planning or 
transition activities; 
Remaining actions: 
* Although OMB has developed a migration strategy, we defer our final 
assessment of these actions toward addressing this recommendation until 
we complete a more in-depth analysis as part of our planned follow-on 
work. 

GAO recommendation: 11. Articulate a clear goal and criteria for 
ensuring agencies are subject to the application service provider 
concept and cannot continue developing and implementing their own 
stovepiped systems; 
Status: Not completed; 
Progress and remaining actions: Progress: 
* See recommendation 10 describing OMB's progress to clearly articulate 
the applicability of the shared service provider concept to agencies; 
Remaining actions: 
* Although OMB has taken steps to articulate a clear goal and criteria 
for ensuring agencies are subject to the shared service provider 
concept, we defer our final assessment of these actions toward 
addressing this recommendation until we complete a more in-depth 
analysis as part of our planned follow-on work. 

GAO recommendation: 12. Establish a migration path or timetable for 
when agencies should migrate to an application service provider; 
Status: Not completed; 
Progress and remaining actions: 
Progress: 
* See recommendation 10 describing progress related to establishing a 
migration path or timetable; 
* Although these efforts articulate the applicability of the shared 
services concept to federal agencies and represent important elements 
of an overall migration strategy, additional efforts are needed for an 
effective strategy including the establishment of clear migration 
timelines and processes to effectively monitor progress toward meeting 
them. OMB's recent estimates for when agencies will be migrated to 
shared service providers are unclear, indicating that many have been 
scheduled through fiscal year 2015 while some have not yet been 
scheduled. According to OMB officials, although OMB has been working to 
develop a detailed migration timeline it has not yet been finalized. 
Until this tool is finalized, the extent to which OMB efforts to date 
address this recommendation remains unclear; 
Remaining actions: 
* Develop clear and measurable goals, including specific timelines for 
migrating to shared service providers based, in part, on the life cycle 
of existing financial management systems. 

GAO recommendation: 13. Provide the necessary information for an agency 
to select an application service provider; 
Status: Completed; 
Progress and remaining actions: 
Progress: 
* The Competition Framework issued by OMB in May 2006 provides 
additional guidance to help agencies select a shared service provider 
and requires agencies undertaking steps to acquire new financial 
management systems to comply with four guiding principles, including 
considering providers with a demonstrated capability, using a 
competitive process, implementing an accountability structure, and 
tracking results; 
* In September 2006 OMB issued its Migration Planning Guidance designed 
to help agencies prepare for and manage a migration of their financial 
management system operations to a shared service provider. In January 
2009, OMB revised Circular No. A-127 providing additional guidance on 
the use of shared service providers. 

GAO recommendation: 14. Develop guidance to assist agencies in adopting 
a change management strategy for moving to application service 
providers; 
Status: Completed; 
Progress and remaining actions: 
Progress: 
Migration Planning Guidance issued in September 2006 includes a section 
on Change Management Best Practices, which provides considerations for 
managing the organizational changes to facilitate the transition from 
an agency's existing financial systems or operations to a shared 
service provider. This section includes in-depth descriptions of best 
practices in a variety of areas that can assist agencies in developing 
and adopting an effective change management strategy including the role 
of leadership, governance, organizational structure, migration team 
composition, human capital management, and stakeholder and 
communications management. 

Disciplined processes: 

GAO recommendation: 15. Define and ensure agencies effectively 
implement disciplined processes necessary to properly manage the 
specific projects; 
Status: Not completed; 
Progress and remaining actions: 
Progress: 
* OMB issued guidance related to disciplined processes in its Migration 
Planning Guidance issued in September 2006 which provides agencies with 
high-level guidance to manage their systems modernization projects and 
manage risks of migrating to shared service providers; 
* See recommendations 8 and 10 describing progress related to requiring 
agencies to migrate to shared service providers and only permitting 
them to use the certified products as configured to meet required 
standard business processes. According to OMB officials, using shared 
service providers with proven track records will help to reduce or 
eliminate traditional project management tasks commonly associated with 
system implementations; 
* However, additional efforts are needed to adequately define the 
critical elements of disciplined processes needed and steps to be taken 
to ensure they are adequately implemented. In our review of OMB 
guidance on selected disciplined processes, we noted that OMB guidance 
does not provide in-depth information on each of the selected 
disciplined processes. For example, OMB guidance does not adequately 
address how agencies are to ensure the traceability of requirements as 
well as the need to consider specific issues that apply uniquely to 
converting data as part of the replacement of a financial system, 
incorporate test cases that expose the system to invalid and unexpected 
outcomes, and ensure thorough inspection of test results. In addition, 
OMB reviews of agencies' financial management systems implementations 
generally do not focus on implementation of the disciplined processes; 
Remaining actions: 
* Thoroughly define the disciplined processes (i.e., requirements 
management, testing, data conversion and system interfaces, 
configuration, risk and project management, quality assurance) 
necessary to properly manage projects; 
* Map each of the disciplined processes to OMB guidance that contains 
clear and specific instructions requiring their use and how each 
disciplined process should be performed; 
* Issue guidance specifically related to disciplined processes 
necessary to properly manage specific projects; 
* Provide oversight and more structured reviews specifically related to 
financial management projects to ensure that disciplined processes are 
effectively implemented. 

GAO recommendation: 16. Provide specific guidance to agencies on 
disciplined processes for financial system implementations; 
Status: Not completed; 
Progress and remaining actions: 
Progress: 
* See recommendation 15 describing progress related to specific 
guidance provided to agencies on disciplined processes including the 
issuance of Migration Planning Guidance, OMB Circular No. A-11, Part 7, 
and a May 25, 2007, memorandum.[K] Of these, the Migration Planning 
Guidance provides the most specific guidance related to financial 
management system implementations. However, as described in 
recommendation 15, additional efforts are needed to provide guidance to 
address the use of disciplined processes in connection with financial 
management system implementations; 
Remaining actions: 
* See recommendation 15 describing remaining actions needed to address 
the use of disciplined processes necessary to properly manage specific 
financial management system implementation projects. 

GAO recommendation: 17. Provide a standard set of practices to guide 
the migrations from legacy systems to new systems and application 
service providers; 
Status: Completed; 
Progress and remaining actions: 
Progress: 
* See recommendations 8, 13, and 14 describing progress related to 
issuing the Competition Framework, Migration Planning Guidance 
including Change Management Best Practices, and OMB's January 2008 
memorandum providing guidance for agencies planning to migrate their 
agency's financial management systems and services to new systems and 
shared service providers. 

GAO recommendation: 18. Develop processes to facilitate oversight and 
review that allow for a more structured review and follow-up of 
agencies' financial system implementation projects; 
Status: Not completed; 
Progress and remaining actions: 
Progress: 
* OMB issued a variety of guidance on financial management system 
requirements and the implementation of IT projects that facilitates the 
oversight and review of financial system implementation projects; 
* OMB uses information obtained from agencies such as the life cycles 
of agencies' existing financial management systems, exhibit 300s, and 
through discussions specifically related to financial management 
systems implementation projects which occur at least annually, or more 
frequently during active migration planning or transition activities; 
* During the budget formulation process, OMB analyzes information 
related to agency financial management system and other IT projects and 
identifies those warranting additional attention on its Management 
Watch List and High Risk List; 
These efforts represent important aspects of OMB's oversight of 
financial management system implementation projects. However, OMB has 
not developed a structured process to facilitate its overall oversight 
efforts related to these projects. In addition, OMB does not adequately 
capture spending specifically related to financial management system 
modernization projects, which limits its ability to fully consider the 
financial risks associated with these efforts. Also, we recently 
testified[L] that although OMB has taken steps to improve the 
identification of poorly planned and poorly performing projects, 
additional efforts are needed to address prior recommendations to 
improve the planning, management, and oversight of these projects. 
Finally, the extent of problems related to financial management system 
implementation projects that continue to be reported indicate the need 
for additional oversight efforts designed to further identify and 
prevent failures in the future; 
Remaining actions: 
* Enhance existing oversight efforts to improve financial management 
system implementations by: 
- developing a structured process to identify and evaluate specific and 
systemic implementation weaknesses and risks specifically related to 
financial management system modernizations, including those associated 
with projects on the Management Watch List and High Risk List and 
others identified through reviews of agency provided information, as 
well as their costs, and discussions with agency officials; 
- implementing processes to ensure that agencies more effectively and 
consistently comply with guidance related to implementing financial 
management system modernization projects, including the use of 
disciplined processes to reduce the risk of implementation failures; 
and; 
- clarifying guidance so that agencies consistently report planned and 
actual spending related to financial management system modernization 
projects including the financial portion of mixed systems. 

Sources: GAO analysis, OMB and FSIO data. 

[A] According to FFMIA Section 803(a), agencies are required to 
implement and maintain financial management systems that comply 
substantially with federal financial management systems requirements, 
applicable federal accounting standards, and the United States 
Government Standard General Ledger at the transaction level. 

[B] Pursuant to FFMIA Section 806 (4), (5), and (6), "financial 
management systems" includes the financial systems and the financial 
portions of mixed systems necessary to support financial management, 
including automated and manual processes, procedures, controls, data, 
hardware, software, and support personnel dedicated to the operation 
and maintenance of system functions; "financial system" includes an 
information system, comprised of one or more applications, which is 
used for--(a) collecting, processing, maintaining, transmitting, or 
reporting data about financial events; (b) supporting financial 
planning or budgeting activities; (c) accumulating and reporting cost 
information; or (d) supporting the preparation of financial statements; 
and "mixed system" means an information system that supports both 
financial and nonfinancial functions of the federal government or 
components thereof. 

[C] OMB, Memorandum, Update on the Financial Management Line of 
Business (Washington, D.C.: Jan. 28, 2008). 

[D] According to OMB, segment architecture defines a simple road map 
for a core mission area, business service, or enterprise service that 
is driven by business management and delivers products that improve the 
delivery of services to citizens and agency staff. From an investment 
perspective, segment architecture drives decisions for a business case 
or group of business cases supporting a core mission area or common or 
shared service. 

[E] According to OMB, the FEA consists of a set of interrelated 
"reference models" designed to facilitate cross-agency analysis and the 
identification of duplicative investments, gaps, and opportunities for 
collaboration within and across agencies. Collectively, the reference 
models comprise a framework for describing important elements of the 
FEA in a common and consistent way. 

[F] OMB, Memorandum, Update on the Financial Management Line of 
Business (Washington, D.C.: Jan. 28, 2008). 

[G] FSIO, Financial Management Systems Standard Business Processes for 
U.S. Government Agencies (Washington, D.C.: July 18, 2008). 

[H] OMB, Memorandum, Update on the Financial Management Line of 
Business (Washington, D.C.: Jan. 28, 2008). 

[I] OMB, Memorandum, Federal Financial Management Standard Business 
Document (Washington, D.C.: July 18, 2008). 

[J] OMB, Memorandum, Update on the Financial Management Line of 
Business (Washington, D.C.: Jan. 28, 2008). 

[K] OMB Memorandum, Use of Performance-Based Management Systems for 
Major Acquisition Programs (Washington, D.C.,: May 25, 2007). 

[L] GAO, Information Technology: OMB and Agencies Need to Improve 
Planning, Management, and Oversight of Projects Totaling Billions of 
Dollars, GAO-08-1051T (Washington, D.C.: July 31, 2008). 

[End of table] 

[End of section] 

Appendix III: Comments from the Office of Management and Budget: 

Executive Office Of The President: 
The Controller: 
Office Of Management And Budget: 
Washington, D.C. 20503: 

April 20, 2009: 

Ms. Kay Daly: 
Director, Financial Management and Assurance: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Ms. Daly: 

Thank you for the opportunity to comment on the Government 
Accountability Office (GAO) draft report entitled "Financial Management 
Systems: OMB's Financial Management Line of Business Initiative 
Continues but Future Success Remains Uncertain (GAO-09-328)." We 
appreciate GAO's continued efforts to evaluate agencies' progress in 
modernizing their financial management systems and its valuable 
insights into improving this critical area. 

Under the FMLoB, the Office of Management and Budget (OMB), the 
Financial Systems Integration Office (FSIO), and Federal agencies are 
working collaboratively to strengthen financial management practices 
across the government by developing common business standards, 
developing common data standards, and moving financial systems to 
shared services. Specifically, FSIO issued government-wide financial 
business process standards for the following: Funds Management and 
Payment Management, Receivables Management, Reports. and Reimbursable 
Management. To support the standardization efforts, OMB updated 
Circular No. A-127, Financial Management Systems, on January 9, 2009. 

In general, OMB agrees with the first part of GAO's recommendation to 
facilitate complete and accurate reporting of actual and planned 
spending related to financial management system modernization projects. 
We are currently reviewing agency reported spending data to determine 
whether any refinement to OMB guidance is needed as well as exploring 
opportunities to make cost data on agency financial system 
implementation and support activities available publicly. With respect 
to the second part of GAO's recommendation, OMB is evaluating whether 
it is necessary to better capture cost information with respect to the 
financial portion of mixed systems. Our preliminary analysis shows that 
breakouts of this data in this manner would have limited value for 
decision making because such a distinction is highly subjective and 
would not likely change an agencies investment decisions. Further, we 
believe there will he greater benefit to dedicating resources to other 
higher risk areas such as finalizing the Concept of Operations. 

We appreciate the opportunity to comment on the draft report, including 
a series of technical suggestions that were provided separately by OMB 
staff. We look forward to working with GAO in improving Federal 
financial management systems. If you have any questions please feel 
free to contact Adam Goldberg, Chief, Financial Analysis and Systems 
Branch, at 202-395-7583. 

Sincerely, 

Signed by: 

Daniel Werfel: 
Deputy Controller: 

[End of section] 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Kay L. Daly, (202) 512-9095 or dalykl@gao.gov: 

Naba Barkakati, (202) 512-2700 or barkakatin@gao.gov: 

Staff Acknowledgments: 

Individuals making major contributions to this report were Chris 
Martin, Senior-Level Technologist; Michael LaForge, Assistant Director; 
Sabine Paul, Assistant Director; Latasha Brown; Francine DelVecchio; 
Jim Kernen; Patrick Tobo; and Leonard Zapata. 

[End of section] 

Related GAO Products: 

Information Technology: Management and Oversight of Projects Totaling 
Billions of Dollars Need Attention. [hyperlink, 
http://www.gao.gov/products/GAO-09-624T]. Washington, D.C.: April 28, 
2009. 

Financial Management: Persistent Financial Management Systems Issues 
Remain for Many CFO Act Agencies. [hyperlink, 
http://www.gao.gov/products/GAO-08-1018]. Washington, D.C.: September 
30, 2008. 

Information Technology: Treasury Needs to Better Define and Implement 
Its Earned Value Management Policy. [hyperlink, 
http://www.gao.gov/products/GAO-08-951]. Washington, D.C.: September 
22, 2008. 

DOD Business Systems Modernization: Important Management Controls Being 
Implemented on Major Navy Program, but Improvements Needed in Key 
Areas. [hyperlink, http://www.gao.gov/products/GAO-08-896]. Washington, 
D.C.: September 8, 2008. 

Information Technology: Agencies Need to Establish Comprehensive 
Policies to Address Changes to Projects' Cost, Schedule, and 
Performance Goals. [hyperlink, http://www.gao.gov/products/GAO-08-925]. 
Washington, D.C.: July 31, 2008. 

Information Technology: OMB and Agencies Need to Improve Planning, 
Management, and Oversight of Projects Totaling Billions of Dollars. 
[hyperlink, http://www.gao.gov/products/GAO-08-1051T]. Washington, 
D.C.: July 31, 2008. 

Fiscal Year 2007 U.S. Government Financial Statements: Sustained 
Improvement in Financial Management Is Crucial to Improving 
Accountability and Addressing the Long-Term Fiscal Challenge. 
[hyperlink, http://www.gao.gov/products/GAO-08-926T]. Washington, D.C.: 
June 26, 2008. 

Fiscal Year 2007 U.S. Government Financial Statements: Sustained 
Improvement in Financial Management Is Crucial to Improving 
Accountability and Addressing the Long-Term Fiscal Challenge. 
[hyperlink, http://www.gao.gov/products/GAO-08-847T]. Washington, D.C.: 
June 5, 2008. 

Highlights of a Forum Convened by the Comptroller General of the United 
States: Improving the Federal Government's Financial Management 
Systems. [hyperlink, http://www.gao.gov/products/GAO-08-447SP]. 
Washington, D.C.: April 16, 2008. 

Defense Travel System: Overview of Prior Reported Challenges Faced by 
DOD in Implementation and Utilization. [hyperlink, 
http://www.gao.gov/products/GAO-08-649T]. Washington, D.C.: April 15, 
2008. 

Defense Business Transformation: Sustaining Progress Requires 
Continuity of Leadership and an Integrated Approach. [hyperlink, 
http://www.gao.gov/products/GAO-08-462T]. Washington, D.C.: February 7, 
2008. 

Homeland Security: Responses to Posthearing Questions Related to the 
Department of Homeland Security's Integrated Financial Management 
Systems Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-07-1157R]. Washington, D.C.: August 10, 
2007. 

Financial Management: Long-standing Financial Systems Weaknesses 
Present a Formidable Challenge. [hyperlink, 
http://www.gao.gov/products/GAO-07-914]. Washington, D.C.: August 3, 
2007. 

Cost Assessment Guide: Best Practices for Estimating and Managing 
Program Costs. [hyperlink, http://www.gao.gov/products/GAO-07-1134SP]. 
Washington, D.C.: July 2007. 

DOD Business Transformation: Lack of an Integrated Strategy Puts the 
Army's Asset Visibility System Investments at Risk. [hyperlink, 
http://www.gao.gov/products/GAO-07-860]. Washington, D.C.: July 27, 
2007. 

Business Modernization: NASA Must Consider Agencywide Needs to Reap the 
Full Benefits of Its Enterprise Management System Modernization Effort. 
[hyperlink, http://www.gao.gov/products/GAO-07-691]. Washington, D.C.: 
July 20, 2007. 

Managerial Cost Accounting Practices: Implementation and Use Vary 
Widely across 10 Federal Agencies. [hyperlink, 
http://www.gao.gov/products/GAO-07-679]. Washington, D.C.: July 20, 
2007. 

Homeland Security: Transforming Departmentwide Financial Management 
Systems Remains a Challenge. [hyperlink, 
http://www.gao.gov/products/GAO-07-1041T]. Washington, D.C.: June 28, 
2007. 

Homeland Security: Departmentwide Integrated Financial Management 
Systems Remain a Challenge. [hyperlink, 
http://www.gao.gov/products/GAO-07-536]. Washington D.C.: June 21, 
2007. 

Managerial Cost Accounting Practices at the Department of Interior. 
[hyperlink, http://www.gao.gov/products/GAO-07-298R]. Washington, D.C.: 
May 24, 2007. 

DOD Business Systems Modernization: Progress Continues to Be Made in 
Establishing Management Controls, but Further Steps Are Needed. 
[hyperlink, http://www.gao.gov/products/GAO-07-733]. Washington, D.C.: 
May 14, 2007. 

Information Technology: DHS Needs to Fully Define and Implement 
Policies and Procedures for Effectively Managing Investments. 
[hyperlink, http://www.gao.gov/products/GAO-07-424]. Washington, D.C.: 
April 27, 2007. 

Fiscal Year 2006 U.S. Government Financial Statements: Sustained 
Improvement in Federal Financial Management Is Crucial to Addressing 
Our Nation's Accountability and Fiscal Stewardship Challenges. 
[hyperlink, http://www.gao.gov/products/GAO-07-607T]. Washington, D.C.: 
March 20, 2007. 

Federal Financial Management: Critical Accountability and Fiscal 
Stewardship Challenges Facing Our Nation. [hyperlink, 
http://www.gao.gov/products/GAO-07-542T]. Washington, D.C.: March 1, 
2007. 

Defense Business Transformation: A Comprehensive Plan, Integrated 
Efforts, and Sustained Leadership Are Needed to Assure Success. 
[hyperlink, http://www.gao.gov/products/GAO-07-229T]. Washington, D.C.: 
November 16, 2006. 

Defense Travel System: Estimated Savings Are Questionable and 
Improvements Are Needed to Ensure Functionality and Increase 
Utilization. [hyperlink, http://www.gao.gov/products/GAO-07-208T]. 
Washington, D.C.: November 16, 2006. 

Financial Management: Improvements Under Way but Serious Financial 
Systems Problems Persist. [hyperlink, 
http://www.gao.gov/products/GAO-06-970]. Washington, D.C.: September 
26, 2006. 

Defense Travel System: Reported Savings Questionable and Implementation 
Challenges Remain. [hyperlink, http://www.gao.gov/products/GAO-06-980]. 
Washington, D.C.: September 26, 2006. 

Managerial Cost Accounting Practices: Department of Agriculture and the 
Department of Housing and Urban Development. [hyperlink, 
http://www.gao.gov/products/GAO-06-1002R]. Washington, D.C.: September 
21, 2006. 

Department of Defense: Sustained Leadership Is Critical to Effective 
Financial and Business Management Transformation. [hyperlink, 
http://www.gao.gov/products/GAO-06-1006T]. Washington, D.C.: August 3, 
2006. 

Information Technology: Agencies and OMB Should Strengthen Processes 
for Identifying and Overseeing High Risk Projects. [hyperlink, 
http://www.gao.gov/products/GAO-06-647]. Washington, D.C.: June 15, 
2006. 

Financial Management Systems: Lack of Disciplined Processes Puts 
Effective Implementation of Treasury's Governmentwide Financial Report 
System at Risk. [hyperlink, http://www.gao.gov/products/GAO-06-413]. 
Washington, D.C.: April 21, 2006. 

Managerial Cost Accounting Practices: Departments of Health and Human 
Services and Social Security Administration. [hyperlink, 
http://www.gao.gov/products/GAO-06-599R]. Washington, D.C.: April 18, 
2006. 

Financial Management Systems: DHS Has an Opportunity to Incorporate 
Best Practices in Modernization Efforts. [hyperlink, 
http://www.gao.gov/products/GAO-06-553T]. Washington, D.C.: March 29, 
2006. 

Financial Management Systems: Additional Efforts Needed to Address Key 
Causes of Modernization Failures. [hyperlink, 
http://www.gao.gov/products/GAO-06-184]. Washington, D.C.: March 15, 
2006. 

Managerial Cost Accounting Practices: Departments of Education, 
Transportation, and the Treasury. [hyperlink, 
http://www.gao.gov/products/GAO-06-301R]. Washington, D.C.: December 
19, 2005. 

CFO Act of 1990: Driving the Transformation of Federal Financial 
Management. [hyperlink, http://www.gao.gov/products/GAO-06-242T]. 
Washington, D.C.: November 17, 2005. 

National Aeronautics and Space Administration: Long-standing Financial 
Management Challenges Threaten the Agency's Ability to Manage Its 
Programs. [hyperlink, http://www.gao.gov/products/GAO-06-216T]. 
Washington, D.C.: October 27, 2005. 

Managerial Cost Accounting Practices: Departments of Labor and Veterans 
Affairs. [hyperlink, http://www.gao.gov/products/GAO-05-1031T]. 
Washington, D.C.: September 21, 2005. 

Managerial Cost Accounting Practices: Leadership and Internal Controls 
Are Key to Successful Implementation. [hyperlink, 
http://www.gao.gov/products/GAO-05-1013R]. Washington, D.C.: September 
2, 2005. 

Army Depot Maintenance: Ineffective Oversight of Depot Maintenance 
Operations and System Implementation Efforts. [hyperlink, 
http://www.gao.gov/products/GAO-05-441]. Washington, D.C.: June 30, 
2005. 

Information Technology: OMB Can Make More Effective Use of Its 
Investment Reviews. [hyperlink, 
http://www.gao.gov/products/GAO-05-276]. Washington, D.C.: April 15, 
2005. 

[End of section] 

Footnotes: 

[1] The term financial management systems includes the financial 
systems and the financial portions of mixed systems necessary to 
support financial management, including automated and manual processes, 
procedures, controls, data, hardware, software, and support personnel 
dedicated to the operation and maintenance of system functions. 

[2] Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15, 1990). 

[3] Pub. L. No. 104-208, div. A., § 101(f), title VIII, 110 Stat. 3009, 
3009-389 (Sept. 30, 1996). 

[4] See the list of Related GAO Products at the end of this report. 

[5] GAO, Financial Management Systems: Additional Efforts Needed to 
Address Key Causes of Modernization Failures, [hyperlink, 
http://www.gao.gov/products/GAO-06-184] (Washington, D.C.: Mar. 15, 
2006). 

[6] Disciplined processes represent best practices in systems 
development and implementation efforts that have been shown to reduce 
the risks associated with software development and acquisition efforts 
to acceptable levels and are fundamental to successful system 
implementations. Examples of disciplined processes include requirements 
management, testing, risk management, data conversion, and project 
management. 

[7] In December 2004, the Joint Financial Management Improvement 
Program (JFMIP) Principals voted to modify the roles and 
responsibilities of the JFMIP, resulting in the creation of FSIO. FSIO 
assumed responsibility for coordinating the work related to federal 
financial management systems requirements and is serving as the Program 
Manager for the FMLOB Initiative. OMB's Office of Federal Financial 
Management (OFFM) is responsible for issuing the new or revised federal 
financial management system requirements. See OMB, Memorandum, Update 
on the Financial Management Line of Business and the Financial Systems 
Integration Office (Washington, D.C.: Dec. 16, 2005). 

[8] The PMA was created to address the need for citizen-centered, 
results-oriented, and market-based federal government initiatives. 
Pursuant to the PMA, OMB created Lines of Business initiatives which 
address redundant information technology (IT) investments and business 
processes across the federal government including case management, 
grants management, human resources management, federal health 
architecture, information systems security, budget formulation and 
execution, geospatial, and IT infrastructure. 

[9] Pub. L. No. 97-255, 96 Stat. 814 (Sept. 8, 1982) (codified at 31 U. 
S. C. § 3512(c), (d)). 

[10] Pub. L. No. 103-62, 107 Stat. 285 (Aug. 3, 1993). 

[11] Pub. L. No. 103-356, 108 Stat. 3410 (Oct. 13, 1994). 

[12] 40 U.S.C. §§ 11101-11704. 

[13] Pub. L. No. 107-289, 116 Stat. 2049 (Nov. 7, 2002). 

[14] Pub.L. No. 107-347 § 101(a), 116 Stat. 2899, 2902-05 (Dec. 17, 
2002) (codified, in relevant part, at 44 U.S.C. § 3602(a), (f)). 

[15] Pursuant to OMB Circular No. A-11, Section 53, agencies are 
required to specify IT investments related to (1) Mission Area Support, 
(2) Infrastructure, Office Automation, and Telecommunications, (3) 
Enterprise Architecture and Planning, (4) Grants Management Systems, 
(5) Grants to State and Local IT Investments, and (6) National Security 
Systems. 

[16] According to OMB Circular No. A-11, Section 53, spending on 
modernization projects consists of program costs for new investments, 
changes, or modifications to existing systems to improve capability or 
performance, changes mandated by Congress or agency leadership, 
personnel costs for investment management, and direct support. 

[17] According to OMB, major investments are placed on the Management 
Watch List based on its review of agency project business cases for the 
following reasons: weak security section; weak nonsecurity section; 
project manager rating mismatched between agency's exhibit 53 & exhibit 
300; the project manager identified for the investment has not been 
validated as qualified for the investment per the agency's exhibit 53; 
agency failed to receive a "satisfactory" or better evaluation by the 
agency's inspector general (IG) as reported in its annual Federal 
Information Security Management Act reports for the quality of its 
certification and accreditation process and for the quality of its 
privacy impact assessment process; agency is rated red for the cost/ 
schedule performance element of the PMA E-Gov Scorecard; and general 
overall consistency issues with the content within the submitted 
exhibit 300. In addition, projects with a low composite score related 
to all the reasons previously described are placed on the Management 
Watch List. 

[18] According to the materials supplementing the President's budget 
for fiscal year 2009, OMB listed the following criteria for identifying 
high-risk projects: complex projects, projects with a high degree of 
political or citizen interest, projects with cross-organizational or 
agency impact or interdependencies with other systems efforts, major 
systems on the Management Watch List at the conclusion of the prior 
fiscal year that continue to warrant heightened attention during 
project execution, major systems formally designated as an E-Government 
or Line of Business shared service provider, E-Government initiative 
migration projects that are planned or under way, existing or legacy 
agency systems retiring once their functionality has been migrated to a 
common solution, and program or program management office activities 
supporting governmentwide common solutions. 

[19] According to OMB guidance, agencies are to determine, for each of 
their high-risk projects, whether the project was meeting the following 
performance evaluation criteria: (1) establishing baselines with clear 
cost, schedule, and performance goals; (2) maintaining the project's 
cost and schedule variances within 10 percent; (3) assigning a 
qualified project manager; and (4) avoiding duplication by leveraging 
interagency and governmentwide investments. 

[20] [hyperlink, http://www.gao.gov/products/GAO-06-184]. 

[21] [hyperlink, http://www.gao.gov/products/GAO-06-184]. 

[22] [hyperlink, http://www.gao.gov/products/GAO-06-184]. 

[23] OMB, Memorandum, Update on the Financial Management Line of 
Business (Washington, D.C.: Jan. 28, 2008). With regard to FMLOB 
priorities, the memorandum stated that the FMLOB initiative will 
continue with transparency and standardization projects related to 
incorporating FMLOB business standards and enhancing tools to assist 
agencies in evaluating and migrating to shared service solutions. 

[24] Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375, § 332, 118 Stat. 1811, 1854 (Oct. 28, 
2004 (codified at 10 U.S.C. § 2222(j)(2)), defines a defense business 
system as an information system, other than a national security system, 
operated by, for, or on behalf of the department that is used to 
support business activities, such as acquisition, financial management, 
logistics, strategic planning and budgeting, installations and 
environment, and human resources management. The act states that such 
systems are to include financial systems, mixed systems, financial data 
feeder systems, and IT and information assurance infrastructure. 

[25] GAO, Defense Business Transformation: Sustaining Progress Requires 
Continuity of Leadership and an Integrated Approach, [hyperlink, 
http://www.gao.gov/products/GAO-08-462T] (Washington, D.C.: Feb. 7, 
2008). 

[26] The term mixed system means an information system that supports 
both financial and nonfinancial functions of the federal government or 
components thereof. 

[27] OMB Circular No. A-127 (revised), Financial Management Systems 
(Washington, D.C.: Jan. 9, 2009). 

[28] GAO, DOD Business Systems Modernization: Important Management 
Controls Being Implemented on Major Navy Program, but Improvements 
Needed in Key Areas, [hyperlink, 
http://www.gao.gov/products/GAO-08-896] (Washington, D.C.: Sept. 8, 
2008). According to DOD, Navy ERP is to address the Navy's long-
standing problems related to financial transparency and asset 
visibility. Specifically, the program is intended to standardize the 
Navy's acquisition, financial, program management, maintenance, plant 
and wholesale supply, and workforce management business processes 
across its dispersed organizational components. When the program is 
fully implemented, it is to support over 86,000 users. 

[29] GAO, DOD Business Transformation: Lack of an Integrated Strategy 
Puts the Army's Asset Visibility System Investments at Risk, 
[hyperlink, http://www.gao.gov/products/GAO-07-860] (Washington, D.C.: 
July 27, 2007); Homeland Security: Departmentwide Integrated Financial 
Management Systems Remain a Challenge, [hyperlink, 
http://www.gao.gov/products/GAO-07-536] (Washington, D.C.: June 21, 
2007); and Financial Management Systems: Lack of Disciplined Processes 
Puts Effective Implementation of Treasury's Governmentwide Financial 
Report System at Risk, [hyperlink, 
http://www.gao.gov/products/GAO-06-413] (Washington, D.C.: Apr. 21, 
2006). 

[30] [hyperlink, http://www.gao.gov/products/GAO-07-860]. 

[31] GAO, Highlights of a Forum Convened by the Comptroller General of 
the United States: Improving the Federal Government's Financial 
Management Systems, [hyperlink, 
http://www.gao.gov/products/GAO-08-447SP] (Washington, D.C.: Apr. 16, 
2008). 

[32] In March 2004, OMB initiated a governmentwide analysis of five 
lines of business--financial management, human resources management, 
grants management, federal health architecture, and case management-- 
and in March 2005 started a task force to address a sixth line of 
business on IT security. Three additional lines of business were 
initiated in March 2006 on budget formulation and execution, 
geospatial, and IT infrastructure optimization. 

[33] The FEA commenced in 2002 and is a business-based framework for 
governmentwide improvement intended to identify opportunities to 
simplify processes and unify work across the agencies and within the 
lines of business of the federal government that maximizes technology 
investments to better achieve mission outcomes. The FEA includes the 
Business Reference Model, which provides a framework for facilitating a 
functional view of the government's lines of business such as the 
support functions necessary to conduct government operations and the 
resource management functions that support all areas of the 
government's business, including financial management. 

[34] [hyperlink, http://www.gao.gov/products/GAO-06-184]. 

[35] OMB, Memorandum, Federal Financial Management Standard Business 
Document (Washington, D.C.: July 18, 2008). 

[36] FSIO, Financial Management Systems Standard Business Processes for 
U.S. Government Agencies (Washington, D.C.: July 18, 2008). This 
document presents governmentwide common processes and activities, 
standard business rules, and data exchanges for core financial business 
processes. It contains detailed descriptions of the funds, payment, and 
receivables management processes. OMB, in conjunction with FSIO, 
released exposure drafts for review and comment for the Reports 
Management and Reimbursables Management standard business processes in 
February and March 2009, respectively. 

[37] OMB, Memorandum, Update on the Financial Management Line of 
Business (Washington, D.C.: Jan. 28, 2008). 

[38] [hyperlink, http://www.gao.gov/products/GAO-06-184]. 

[39] OMB, Federal Financial Management Report 2007 (Washington, D.C.: 
Jan. 31, 2007). 

[40] OMB, Budget of the United States Government Fiscal Year 2009, 
Analytical Perspectives, Supplemental Materials, Table 9-9 (Washington, 
D.C.: Feb. 4, 2008). 

[41] [hyperlink, http://www.gao.gov/products/GAO-06-184]. 

[42] Requirements are the specifications that system developers and 
program managers use to design, develop, or acquire a system. 

[43] OMB, Migration Planning Guidance (version 1), Section 4.1 Project 
Schedule Overview (Washington, D.C.: September 2006). 

[44] Options such as not converting data, processing new transactions 
and activity only, establishing transaction balances in the new system 
for reporting purposes, converting open transactions from the legacy 
system, and recording new activity on closed prior-year transactions 
should be considered when determining the scope and timelines 
associated with financial system data conversion. 

[45] GAO, Army Depot Maintenance: Ineffective Oversight of Depot 
Maintenance Operations and System Implementation Efforts, [hyperlink, 
http://www.gao.gov/products/GAO-05-441] (Washington, D.C.: June 30, 
2005). 

[46] [hyperlink, http://www.gao.gov/products/GAO-06-184]. 

[47] See our audit report on our audit of the federal government's 2008 
and 2007 consolidated financial statements that was incorporated in the 
2008 Financial Report of the United States Government published by the 
Department of the Treasury (Dec. 15, 2008). 

[48] [hyperlink, http://www.gao.gov/products/GAO-08-447SP]. 

[49] [hyperlink, http://www.gao.gov/products/GAO-06-184]. 

[50] GAO, Financial Management: Persistent Financial Management Systems 
Issues Remain for Many CFO Act Agencies, [hyperlink, 
http://www.gao.gov/products/GAO-08-1018] (Washington, D.C.: Sept. 30, 
2008). 

[51] GAO, Information Technology: OMB Can Make More Effective Use of 
Its Investment Reviews, GAO-05-276 (Washington, D.C.: Apr. 15, 2005); 
Information Technology: Agencies and OMB Should Strengthen Processes 
for Identifying and Overseeing High Risk Projects, [hyperlink, 
http://www.gao.gov/products/GAO-06-647] (Washington, D.C.: June 15, 
2006); and [hyperlink, http://www.gao.gov/products/GAO-06-184]. 

[52] The CFO Act of 1990, Clinger-Cohen Act of 1996, and E-Government 
Act of 2002 contain various requirements related to OMB's evaluation 
and oversight of agency financial management systems modernization and 
other IT projects. 

[53] [hyperlink, http://www.gao.gov/products/GAO-06-184]. 

[54] Disciplined processes represent best practices in systems 
development and implementation efforts that have been shown to reduce 
the risks associated with software development and acquisition efforts 
to acceptable levels and are fundamental to successful system 
implementations. Examples of disciplined processes include requirements 
management, testing, risk management, data conversion, and project 
management. 

[55] GAO, Information Technology: OMB and Agencies Need to Improve 
Planning, Management, and Oversight of Projects Totaling Billions of 
Dollars, [hyperlink, http://www.gao.gov/products/GAO-08-1051T] 
(Washington, D.C.: July 31, 2008) and Information Technology: 
Management and Oversight of Projects Totaling Billions of Dollars Need 
Attention, [hyperlink, http://www.gao.gov/products/GAO-09-624T] 
(Washington, D.C.: Apr. 28, 2009). On April 28, 2009, we testified that 
the future of the Management Watch List and High Risk List is uncertain 
because OMB officials stated that they have not decided if the agency 
plans to continue to use these lists. In addition, we testified that 
OMB needs to decide if it is going to continue to use these lists and, 
if not, OMB should promptly implement other appropriate mechanisms to 
help oversee IT investments. 

[56] [hyperlink, http://www.gao.gov/products/GAO-06-184]. 

[57] OMB, Fiscal Year 2009 Information Technology Budget (Apr. 15, 
2008). This estimate includes planned spending related to investments 
mapped to specific FEA Reference Model categories including financial 
management (management of resources and back office services), asset/ 
materials management, planning and budgeting, and revenue collection. 

[58] OMB's FEA Reference Model Mapping Quick Guide (FY09 Budget 
Preparation), July 2007, is a guide to help agencies map their 
investments to FEA reference models in connection with completing the 
exhibit 53 and exhibit 300. Supply chain management investments include 
financial management system-related projects that, according to this 
guide, consist of investments related to goods and services 
acquisition, inventory control, and logistics management. 

[59] According to OMB Circular No. A-11, the total investment for 
financial management systems is equal to the aggregated total of budget 
execution, budget formulation, and financial systems, and agencies are 
required to provide the estimated percentages of each investment's 
total budget authority associated with each of these three areas. 
Further, this guidance specifies that agencies are to only identify the 
financial percentage applicable to the financial portion of mixed 
systems related to their budget request for the next fiscal year. 

[60] The percentage of total federal agency spending on IT projects 
attributable to financial management-related modernization projects is 
based on agency-provided spending data contained in OMB's Report on IT 
Spending for the Federal Government For Fiscal Years 2007, 2008, and 
2009 (Washington, D.C.: April 2009). Financial management-related 
modernization projects consist of those that agencies considered to 
predominately support financial functions and represent new 
investments, changes, or modifications to existing systems to improve 
capability or performance, changes mandated by Congress or agency 
leadership, personnel costs for investment management, and direct 
support. 

[61] GAO, Financial Management Systems: Additional Efforts Needed to 
Address Key Causes of Modernization Failures, [hyperlink, 
http://www.gao.gov/products/GAO-06-184] (Washington, D.C.: Mar. 15, 
2006). 

[End of section] 

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