Financial Management Systems:

Additional Efforts Needed to Address Key Causes of Modernization Failures

GAO-06-184: Published: Mar 15, 2006. Publicly Released: Mar 15, 2006.

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Billions of dollars have been spent governmentwide to modernize financial management systems that have often exceeded budgeted cost, resulted in delays in delivery dates and did not provide the anticipated system functionality when implemented. GAO was asked to identify (1) the key causes for financial management system implementation failures, and (2) the significant governmentwide initiatives currently under way that are intended to address the key causes of financial management system implementation failures. GAO was also asked to provide its views on actions that can be taken to help improve the management and control of agency financial management system modernization efforts.

GAO's work has linked financial management system implementation failures to three recurring themes: (1) disciplined processes, (2) human capital management, and (3) other information technology (IT) management practices. The predictable result of not effectively addressing these three areas has been numerous agency systems throughout the federal government that did not meet their cost, schedule, and performance objectives. Problems related to disciplined processes included requirements management, testing, data conversion and system interfaces, and risk and project management. Human capital management issues included strategic workforce planning, human resources, and change management. Other areas of IT management identified as problems included enterprise architecture, investment management, and information security. The Office of Management and Budget (OMB) has undertaken a number of initiatives to reduce the risks associated with acquiring and implementing financial management systems and addressing long-standing financial management problems. Some of these initiatives are in collaboration with others and are broad-based attempts to reform financial management operations governmentwide. First, OMB has developed and continues to evolve Federal Enterprise Architecture products and has required a mapping of agency architectures to this federal architecture. Another key OMB initiative is referred to as the financial management line of business which established centers of excellence to consolidate financial management activities for major agencies through cross-servicing arrangements. Finally, certain financial management activities and responsibilities have been reassigned to OMB, the Financial Systems Integration Office, and a Chief Financial Officers Council Committee. OMB's initiatives for reforming financial management systems governmentwide could help address the key causes of system implementation failures, but further actions are needed to fully define and implement the processes necessary to successfully complete these initiatives. OMB has correctly recognized the need to implement financial management systems as a governmentwide solution, rather than individual agency stove-piped efforts designed to meet a given entity's needs. Based on industry best practices, GAO believes that four concepts are integral to OMB's approach and key to successfully implementing financial management systems: a concept of operations provides the foundation, standard business processes promote consistency, a strategy for implementing the financial management line of business, and disciplined processes to help ensure successful implementations. GAO recognizes that implementing these concepts is a complex undertaking and raises a number of issues that have far-reaching implications for the government and private sector application service providers.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The development of a concept of operations (ConOps) describing the interrelationships among federal financial management systems and how financial management operations, including those performed by shared service providers, will be carried out would assist in providing a valuable foundation for future financial management modernization efforts. OMB officials originally stated that a draft Financial Management Line of Business (FMLOB) ConOps had been developed; however, it was never finalized. In a June 2010 memo, OMB announced its new approach to federal financial management system modernizations. According to OMB officials, a draft ConOps for the new approach has also been developed; however, officials would not provide an estimate for when it will be completed. Until this critical tool is finalized, the extent to which OMB efforts to date address this recommendation remains unclear. In September 2010, we reported that a ConOps was still not available and therefore consider this recommendation to be closed not implemented.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and Joint Financial Management Improvement Program (JFMIP) realignment initiatives across the government, the Director of the Office of Management and Budget (OMB) should identify the interrelationships among federal financial systems and how the application service provider concept fits into this framework.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Not Implemented

    Comments: The development of a concept of operations (ConOps) describing the interrelationships among federal financial management systems, including how systems at the agency and governmentwide levels should operate cohesively, would assist in providing a valuable foundation for future financial management modernization efforts. OMB officials originally stated that a draft Financial Management Line of Business (FMLOB) ConOps had been developed; however, it was never finalized. In a June 2010 memo, OMB announced its new approach to federal financial management system modernizations. According to OMB officials, a draft ConOps for the new approach has also been developed; however, officials would not provide an estimate for when it will be completed. Until this critical tool is finalized, the extent to which OMB efforts to date address this recommendation remains unclear. In September 2010, we reported that a ConOps was still not available and therefore consider this recommendation to be closed not implemented.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should 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.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  3. Status: Closed - Not Implemented

    Comments: OMB has not defined financial management systems in the Federal Enterprise Architecture (FEA) to be more consistent with the similar definitions used in the Federal Financial Management Improvement Act (FFMIA) and OMB Circulars Nos. A-11 and A-127. According to OMB officials, the FMLOB Segment Architecture was being developed to align with the FEA Reference Model and proposed changes to increase FEA alignment with OMB Circulars No. A-11 and No. A-127 were to be submitted to the Federal CIO Council Architecture and Infrastructure Committee. To address this recommendation, OMB needs to ensure that collective efforts to define financial management systems, including the development and issuance of the FMLOB Segment Architecture, effectively resolve inconsistencies in how financial management systems are defined across the federal government. Pursuant to FFMIA, agencies are required, in part, to determine whether their financial management systems, including mixed systems that support both financial and nonfinancial functions, comply substantially with federal financial system requirements. Revisions to Circular No. A-127 issued in January 2009 specify that guidance issued on specific non-core financial system requirements are not to be considered when determining substantial compliance with FFMIA. As a result, the importance of the interrelationships between core financial systems and mixed systems has not been adequately incorporated in a manner consistent with FFMIA. In addition, we reported in May 2009 that guidance for classifying agency information technology projects into specific FEA categories does not adequately take into account certain types of mixed systems that support financial management activities. Further, in September 2011, we reported that OMB guidance for classifying projects continued to require agencies to classify projects into one FEA category even though they supported multiple functions. As a result, this recommendation is considered closed not implemented.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should define financial management systems in the Federal Enterprise Architecture to be more consistent with the similar definitions used in the Federal Financial Management Improvement Act and OMB Circulars No. A-11 and No. A-127.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  4. Status: Closed - Implemented

    Comments: OMB Circular No. A-127, revised in January 2009, describes the policy for agencies' adoption of standard business processes. OMB, in conjunction with FSIO, issued Financial Management Systems Standard Business Processes for U.S. Government Agencies in September 2009 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 SFFBP focuses on core financial business processes, such as funds management, payment management, and receivables management, and provides detailed descriptions, process steps, flowcharts, and related business rules for these processes. In addition, OMB developed a standard set of business practices for reporting management and reimbursables management in October 2009.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should describe the standard business processes that are needed to meet federal agencies' needs.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  5. Status: Closed - Implemented

    Comments: OMB has developed a standard set of business practices for certain core financial functions, such as payment, funds, receivables, reporting and reimbursables management. According to OMB Circular No. A-127, revised in January 2009, these standards will be included in core financial system requirements and agencies are required to use a system that has been certified as meeting these requirements. The revised Circular No. A-127 requires agencies to utilize certified configurations, but allows for exceptions given a legitimate need. To obtain an exception to deviate from the certified configurations, an agency must demonstrate a legitimate and valid need for the exception and provide OMB with justification for approval. This exception process identifies requirements needed to meet unique agency needs.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should develop a process to identify those that are needed to meet unique agency needs.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  6. Status: Closed - Implemented

    Comments: According to a January 2008 OMB memorandum, 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.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should require application service providers to adopt standard business processes to provide consistency.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  7. Status: Closed - Implemented

    Comments: In a July 2008 memorandum, 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 January 2009, OMB issued a revised version of OMB Circular No. A-127, Financial Management Systems, requiring agencies to adopt standard business processes. In addition, OMB's ongoing work with focus and working groups consisting of agency and other federal financial management community stakeholders to develop standard business processes provides effective opportunities to help encourage agencies to embrace standard business processes and performance measures.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should encourage agencies to embrace new processes.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  8. Status: Closed - Implemented

    Comments: OMB had established a migration policy that stated, 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 must either migrate to a shared service provider or qualified private sector provider, or be designated as a shared service provider. At a minimum, agencies were required to consider pursuing hosting and application management shared services. Agencies could also consider other shared services, such as accounting or transaction processing. In June 2010 guidance, OMB directed that (in lieu of developing stove-piped systems) federal agencies should re-scope agency modernization projects to enable greater adoption of shared service arrangements in high impact areas, such as transaction processing.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should 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 stove-piped systems.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  9. Status: Closed - Not Implemented

    Comments: OMB issued its migration planning guidance in September 2006, that states it is anticipated that within 10 years of the release of the guidance, all agencies will have decided, based on their business case analysis, "whether" to migrate their technology hosting and administration, and application management to a shared service provider or to become a shared service provider themselves. In May 2009, we reported that 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, OMB had been working to develop a detailed migration timeline, but it was never finalized. In a March 2010 memorandum, OMB established the Office of Financial Innovation and Transformation (FIT) to pilot common automated solutions for transaction processing. However, as noted in our September 2010 report, the use of shared service arrangements for financial management systems is no longer mandated and agency participation in the new solutions being developed by FIT is voluntary.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should establish a migration path or time table for when agencies should migrate to an application service provider.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  10. Status: Closed - Implemented

    Comments: In May 2006, OMB issued a competition framework for financial management line of business migrations to help agencies select a shared service provider. Agencies undertaking steps to acquire new financial management systems shall comply with the 4 guiding principles in the competition framework including: (1) Consideration of providers with a demonstrated capability, (2) Use of a competitive process, (3) Implementation of an accountability structure, and (4) Tracking results. In addition, OMB issued its Migration Planning Guidance in September 2006 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.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should provide the necessary information for an agency to select an application service provider.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  11. Status: Closed - Implemented

    Comments: OMB developed guidance on Change Management Best Practices in its Migration Planning Guidance issued in September 2006. This guidance 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 guidance also 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.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should develop guidance to assist agencies in adopting a change management strategy for moving to application service providers.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  12. Status: Closed - Implemented

    Comments: OMB provided agencies with guidance to manage their systems modernization projects in its Migration Planning Guidance, OMB Circular No. A-11, Part 7, and a May 25, 2007 memorandum. This guidance will help agencies in managing risks of migrating to shared service providers. In June 2010, OMB launched an IT project management reform effort, requiring all CFO Act agencies to immediately halt the issuance of new task orders or new procurements for financial system projects pending review and approval from OMB, as well as requiring additional oversight and more structured reviews of financial system projects by agency management to help ensure that agencies adopt best practices (e.g., incorporating disciplined processes into financial management system implementations) that have been proven to reduce project risk and increase success.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should provide specific guidance to agencies on disciplined processes for financial system implementations.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  13. Status: Closed - Implemented

    Comments: OMB provided guidance for agencies planning to migrate their agency's financial management systems and services to new systems and shared service providers in its Competition Framework, Migration Planning Guidance including Change Management Best Practices, and a January 2008 memorandum. This guidance will help agencies manage the risks associated with migrating to new systems and shared service providers.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should provide a standard set of practices to guide the migrations from legacy systems to new systems and application service providers.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  14. Status: Closed - Implemented

    Comments: In June 2010 guidance, OMB directed that all CFO Act agencies were to immediately halt the issuance of new task orders or new procurements for financial system projects pending review and approval by OMB, as well as federal agency senior management. Such project review and oversight was to include (1) mechanisms for project review specified in project plans and (2) identifying a series of milestones, warning flags, and stop points up-front which, if encountered, could cause a project to be suspended and returned to planning. The June 2010 memo also announced the establishment of the Financial Systems Advisory Board which will review projects in accordance with the memorandum and make recommendations to OMB. Further, the June 2010 memo links the apportionment of project funds to OMB's quarterly reviews of agencies' financial system projects. In addition, in July 2010, OMB announced a structured process to facilitate its overall oversight efforts related to information technology projects, including financial system implementations using TechStat Accountability Sessions, which allows OMB to (1) identify and evaluate systemic implementation weaknesses and risks and (2) provide feedback and recommendations to agencies concerning project scope, management and oversight.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should develop processes to facilitate oversight and review that allow for a more structured review and follow-up of agencies' financial system implementation projects.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  15. Status: Closed - Implemented

    Comments: OMB planned to issue a concept of operation (ConOps) during the fall of 2008; however, we reported in May 2009 that this critical tool had not yet been finalized. According to OMB officials, a draft concept of operations had been developed, but it was never finalized. In a June 2010 memo, OMB announced its new approach to federal financial management system modernizations. According to OMB officials, a draft ConOps for the new approach has been developed; however, as we reported in September 2010, it remains unclear whether the new ConOps will be finalized. Remaining actions for OMB include finalizing and issuing a concept of operations document that: (1) describes the operations that must be performed, who must perform them, and where and how the operations will be carried out; (2) clearly defines and describes the scope of financial management activities; (3) describes how the various elements of federal financial systems and mixed systems interrelate; (4) describes how information flows from and through these systems; and (5) explains how financial management systems at the agency and governmentwide levels are designed to operate cohesively. In September 2010, we reported that a ConOps was still not available and therefore consider this recommendation to be closed not implemented.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and Joint Financial Management Improvement Program (JFMIP) realignment initiatives across the government, the Director of the Office of Management and Budget (OMB) should develop a concept of operations.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  16. Status: Closed - Implemented

    Comments: OMB has taken a number of actions which collectively substantially defined federal core financial standard business processes. Specifically, OMB (1) issued a common federal governmentwide accounting classification structure (July 2007), (2) a payment management process (July 2008), (3) a funds management process (July 2008), (4) a receivable management process (November 2008), (5) a reporting management process (October 2009), and (6) a reimbursables management standard business process (October 2009).

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should define standard business processes.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  17. Status: Closed - Implemented

    Comments: OMB developed and issued a migration policy in 2006 that provides that, with limited exception, federal agencies seeking to upgrade to the next major release of a current core financial management system or modernize to a different core financial management system must either migrate to a shared service provider or qualified private sector provider, or be designated as a shared service provider. Under this guidance, at a minimum, federal agencies are to consider pursuing hosting and application management shared services. In June 2010 guidance, OMB directed that federal agencies should re-scope agency modernization projects to enable greater adoption of shared service arrangements in high impact areas, such as transaction processing. Further, OMB partnered with the Department of the Treasury to establish a new Office of Financial Innovation and Transformation to help develop the initial operating capabilities for vendor invoicing and intergovernmental transactions and guide such migrations.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should develop a strategy for ensuring that agencies are migrated to a limited number of application service providers in accordance with OMB's stated approach.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  18. Status: Closed - Implemented

    Comments: In September 2006, OMB issued guidance related to disciplined processes in its Migration Planning Guidance, which provides agencies with high-level guidance to manage their systems modernization projects and manage risks of migrating to shared service providers. In a June 2010 memo, OMB required all CFO Act agencies to immediately halt the issuance of new task orders or new procurements for financial system projects pending review and approval from OMB, as well as required senior management at federal agencies to provide ongoing and transparent project oversight, to include (1) building mechanisms for project review into the project plan and (2) identifying a series of milestones, warning flags, and stop points up-front which, if deemed necessary, can cause the project to be suspended and returned to planning. This additional guidance serves to substantially provide the disciplined processes (e.g., the effective use of project management tools) needed to effectively ensure that federal agencies implement disciplined processes as part of their financial system modernization projects.

    Recommendation: To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, the Director of OMB should define and effectively implement disciplined processes necessary to properly manage the specific projects.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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