Financial Sense

Call it "Change Management Extraordinaire." John Sindelar does. Of course, that's not the official name for the next wave of e-government; its true title is the Lines of Business program. Sindelar, on detail to the Office of Management and Budget from the General Services Administration, is the LOB executive sponsor.

But Sindelar's moniker for the program is apt. What the government is trying to achieve through its financial management LOB is nothing short of extraordinary: migrate the entire government to centers of excellence—four were chosen late last year—to handle most financial processing.

"What makes the Lines of Business effort a challenge is that it cannot be seen only as an information technology effort—this is a business transformation," says Sindelar, whose regular day job is deputy associate administrator for governmentwide policy at GSA.

Besides financial management, there are four other LOB programs: case management, the federal health architecture, grants management and human resources management. The administration is also reviewing a business case for a proposed information technology security LOB. (See below)

Through the effort, OMB wants to create cross-agency programs to take care of business needs—things fundamental to an agency's day-to-day operation yet generally distinct from its mission. At NASA, for instance, the mission, obviously, is space exploration, not creating the optimal payroll system.

What this means today for agencies' CIOs and CFOs is that they must start planning for a shift of this responsibility to one of the four centers of excellence. For some that means preparing to migrate these processes next year, and for others it might not be for several years, Sindelar says.

The four agencies that OMB has tapped to run the initial shared-services centers are GSA, the Interior Department, the Transportation Department's Federal Aviation Administration and the Treasury Department's Bureau of the Public Debt.

In Sindelar's opinion, "there will always be outliers," agencies that will continue to handle their own financial shops. But over the next decade, as agencies' contracts for financial services expire and systems reach the end of their life cycles, most agencies—upward of 80 percent—will migrate to the centers, he says. To get an exemption, an agency will have to make the business case to OMB in its Exhibit 300 budget documentation that its approach is cheaper and smarter.

Earnest Beginnings

The financial management LOB project is the culmination of literally decades of work by the government to rationalize its accounting and financial data processing—going back more than half a century to the creation of the Joint Financial Management Improvement Program in 1950.

Photo: Sean McCormick

"What makes the Lines of Business effort a challenge is that it cannot be seen only as an
information technology effort—this is a business transformation," LOB Executive Sponsor John Sindelar says.

It's through JFMIP, which the Bush administration disbanded this year because of the LOB program, that most agencies came to use whatever financial systems are in place. One of the legacies of JFMIP is the government's approved list of financial software, which served as the basis for identifying the six core services that the centers of excellence must provide.

In more recent years, agencies have appointed CFOs to give financial accountability high visibility, as required by the CFO Act of 1990 and the Federal Financial Management Improvement Act of 1996.

Despite these efforts, financial accountability has continued to elude the government, even as the amount of money it spends on financial systems continues to rise—hovering currently at about $2.5 billion annually. "Most agencies' financial management systems are still unable to routinely produce reliable, useful and timely financial information," according to the Government Accountability Office's most recent annual audit, which the CFO Act requires.

By consolidating financial services at a handful of centers, the Bush administration expects to not only improve the financial accountability of the government but also let agencies focus on their missions, says Tim Young, OMB's associate administrator for e-government and information technology.

"The core mission for agencies by and large is not the maintenance of their back-office systems," Young said during a recent discussion of the LOB program. Through the use of centers of excellence, the government will be more efficient in processing financial data and those savings can be pumped back into government services, he says.

OMB estimates that over the next 10 years, it can save $5 billion through the financial management and human resources consolidations, Sindelar says. That estimate is derived from the work that agencies have done in creating enterprise architectures, which let OMB identify redundant spending.

But the accountability factor could be the sticking point for the success of the financial LOB because the government's checks-and-balances structure isn't set up to monitor cross-agency initiatives as expansive as the LOB team envisions—even if companies and states are already working this way, Sindelar says.

For years, the government has provided some cross-agency services; the most common is payroll processing. But the LOB effort takes the initiative to an entirely different level because it's global, Sindelar says. In the case of financial management, the administration wants to forge a services environment where all but a minority of agencies use the centers of excellence.

So now the issue is bringing lawmakers around, and it's a tough challenge.

Congress tracks agencies' programs through myriad authorizations committees and spending through 13 appropriations committees. The administration is asking lawmakers to take an enterprise approach that is completely foreign to their appropriations and authorizations process.

"This is really an extremely important initiative and one that I wish we had even more partnership with Congress on; some members have been very receptive," Sindelar says.

To sway lawmakers, the LOB team needs to make the case that the efficiencies gained will result in higher performance on mission, he says.

Administration officials literally need to make the rounds on Capitol Hill. Essentially, the White House must lobby members and get them on the side of lawmakers who champion the approach, such as Reps. Tom Davis (R-Va.) and Adam Putnam (R-Fla.).

It's a political hurdle, too. The internal workings of government don't resonate on the campaign trail, don't often lead to sound bites during the evening news hour and don't translate easily into votes.

Part of the slowness to get the Hill behind the effort also results from wariness on the administration's part. "We didn't want to do anything stupid," Sindelar says. "We've got to be cautious and move slowly and incrementally over time."

Gaining Acceptance

Like any new initiative, there's a tipping point, he says. He expects that once four large agencies have successfully moved all financial services to the centers, migrations governmentwide will pick up.

"It's very hard to get those first four," Sindelar says. But by 2007, the number of agencies moving will be on the rise and costs savings will begin coming in. Even for fiscal 2006, what the government spends on financial management should begin to decline, he says. "It's beginning to be reflected in the budget documents."

The slow progress is not due to hard-headedness on the part of agencies' CFOs and CIOs.

In fact, the two groups have worked closely together, says Lawrence Gross, CIO for e-government at Treasury. He led the financial management LOB team during its formative months, until early this year when he joined Treasury from his former job as e-government executive at the Energy Department, which is leading the effort along with the Labor Department.

"This was a very happy marriage between the IT community and the financial community," Gross has said. Why? Because the nine partner agencies on the project all had a similar view of utopia: getting an entity to provide financial services because that's not any agency's core function.

But reaching that "utopia" isn't simple, and for reasons beyond the accountability issue, Sindelar says. Making the financial shift is extremely complex for three other reasons: redundant systems, business processes and investment planning.

The redundant systems in agencies came about for good reasons, such as programs unique to each agency, but in many cases have outgrown their usefulness, Sindelar says. Deciding what aspects of the systems remain pertinent and integrating those factors into broader financial needs requires detailed planning.

That planning is directly tied to establishing smart business processes. Currently, OMB is settling on standards for financial services—the requirements for the migrating agencies, the requirements for the centers and the standards of measurement for cost and quality.

"We need a governance strategy that is robust—that makes the agencies partners in this process," OMB's Young says.

Obviously, determining core financial needs, deciding which unique systems requirements must continue and setting a plan for updating financial services will drive the creation of an agency's investment strategy. Then, OMB must give the thumbs-up or -down to that strategy as laid out in each agency's business case.

OMB is ironing out a template for a standard service level agreement that each agency would adjust for its specific needs.

The six core services are accounting; budget and finance; payment; collections and receivables; asset and liability management; and reporting and information. But when it selected the four initial centers, OMB—which used a Due Diligence Checklist to gather information from would-be services providers—also asked agencies to identify at least two additional value-added services that their centers could provide. Some examples: analytics, budget formulation and data warehousing.

The Office of Federal Procurement Policy, meanwhile, is revising OMB Circular A-127, the policy directive on financial management systems, to address the changes wrought by the LOB approach. A draft is making the rounds among agencies, and a final version is expected this fall, Sindelar says.

OFPP is also crafting competition guidance. Although the administration has not made a decision, it currently expects that agencies will issue solicitations for financial services. The centers will bid, and vendors might also compete to host an agency's financial services and possibly provide business services, Sindelar says.

"The tentative direction is that vendors would come in through the individual acquisitions," he says.

Still to Come

Once the program gets rolling, OMB also realizes it must address how the administration's competitive-sourcing effort meshes with the LOB programs. How will OMB Circular A-76 reviews to outsource work come into play?

"We knew that A-76 would be a factor," Sindelar says. To get some initial information, the Due Diligence Checklist requires agencies to identify the work their centers handle themselves versus that contracted out to vendors and asks that agencies specify whether government or vendor systems host data.

Along those same lines, the LOB team also wants to make sure it leverages the SmartBuy program. Through SmartBuy, GSA has been creating governmentwide licenses for software. The initiative has taken far longer to take off than the government originally anticipated—mostly because aggregating software requirements across all agencies has been supremely difficult, Sindelar says.

Nonetheless, there are clear mutual objectives between SmartBuy and the LOB effort—reducing redundancies, gaining cost savings by exploiting common needs and taking advantage of the government's sheer size when it buys in bulk. The government needs to leverage SmartBuy for all the projects, Sindelar says.

Sindelar likes to sum up the efforts of the LOB teams in a simple phrase: "We're changing the way the government does business, through—as I like to say—clicks, not bricks."