OMB's Financial Management Line of Business Initiative: Background, Issues, and Observations

OMB’s Financial Management Line of Business
Initiative: Background, Issues, and Observations
Updated January 31, 2008
Garrett L. Hatch
Analyst in Government Organization and Management
Government and Finance Division

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

Contents
In troduction ......................................................1
Background ......................................................3
Shared Service Providers (SSPs)..................................4
Migration Planning Guidance....................................5
Goals ...................................................5
Timing ..................................................5
Competition ..............................................6
Standardization and Transparency.............................6
Outstanding Issues.........................................6
Relationship to Other Financial Management Initiatives................6
Support and Criticisms of the FMLOB.................................7
Concluding Observations...........................................10
Standardization and Transparency............................10
Pilot Projects............................................10

OMB’s Financial Management Line of
Business (FMLOB) Initiative: Background,
Issues, and Observations
Introduction
Each year, the federal government spends billions of dollars implementing,
operating, and modernizing agency financial management systems.¹ Financial
systems are vital to the effective management and oversight of public funds, because
the information they provide is used by government officials to make decisions about
agency programs and operations. For example, federal managers use financial data
to monitor contract costs, measure program performance, and identify improper
payments. When agency financial systems provide inaccurate or incomplete data, the
government might be less able to operate at maximum efficiency, and the risk of
waste, fraud, and abuse arguably increases. For example, GAO has reported that
financial management deficiencies at the Department of Defense (DOD) have
resulted in hundreds of millions of dollars in over- and underpayments to contractors
and contributed to DOD’s high rate of travel card delinquency.² Significant financial
management weaknesses can be found throughout the government, and according to
GAO most agency financial systems are unable to routinely produce reliable, useful,
and timely information.³
In order to improve the quality of financial data available to government
officials, Congress has funded a number of financial management improvement
initiatives. Such initiatives, by their nature, are often complex and entail a degree of
risk. The National Aeronautics and Space Administration (NASA), for example,
spent $180 million on two failed efforts to modernize its financial systems, and
NASA’s third such attempt, currently underway, will cost an additional $983
million.⁴ Similarly, problems with inaccurate data led the Department of Veterans

¹ Chief Financial Officers (CFO) Council and Joint Financial Management Improvement
Program (JFMIP), Building the Work Force Capacity to Successfully Implement Systems,
Oct. 2001, p. 3, at [http://archive.gao.gov/f0302/a02376.pdf].
² U.S. Government Accountability Office (GAO), Department of Defense: Status of
Financial Management Weaknesses and Progress Toward Reform, GAO-03-931T, June

2003, pp. 14-15, at [http://www.gao.gov/new.items/d03931t.pdf].

³ GAO, Financial Management: Improvements Underway but Serious Financial Systems
Problems Persist, GAO-06-970, Sept. 2006, p. 5, at
[ h t t p : / / www.ga o.gov/ n ew.i t e ms / d06970.pdf ] .
⁴ GAO, Financial Management Systems: Additional Efforts Needed to Address Key Causes
of Modernization Failures, GAO-06-184, Mar. 2006, p. 2, at [http://www.gao.gov/

Affairs to halt deployment of its new financial system after an investment of $250
million.⁵
One recent effort to improve agency financial systems, the Financial
Management Line of Business (FMLOB) initiative, was launched by the Office of
Management and Budget (OMB) in 2004.⁶ Based on the recommendations of an
interagency task force, the FMLOB proposed that the government move to a “shared
services” model of financial management, whereby agencies would transfer their core
financial system functions — such as accounting, payments, and reporting — to
government-wide shared service providers (SSPs).⁷ Outsourcing administrative and
financial operations to third-party service providers is a common practice in the
private sector, and it has already been employed by the federal government in some
instances.⁸ The National Finance Center, for example, a component of the U.S.
Department of Agriculture (USDA), currently provides payroll and personnel
services for 120 federal organizations across the three branches of government.⁹
According to OMB, the use of SSPs will enhance the timeliness and accuracy of
financial information while reducing the costs associated with operating and
modernizing agency financial systems.¹⁰ Several departments and agencies have
already begun making plans to migrate core functions to SSPs, including the
Department of Labor, the Department of Commerce, USDA, and the Environmental
Protection Agency. OMB has estimated that remaining agencies will follow suit
within the next seven or eight years.¹¹
While the objective of moving to a shared services environment is widely
supported in principle, a range of public and private sector observers has expressed
concern that the initiative is moving too fast. Critics say that the capabilities of some
SSPs have not been adequately demonstrated, that internal control problems should
be addressed prior to migrating core financial systems, and agencies need time to
prepare their personnel and build internal support for the initiative. Implementation

⁴ (...continued)
new.items /d06184.pdf].
⁵ Ibid., p. 18.
⁶ Office of Management and Budget (OMB), Lines of Business, at
[ h t t p : / / www.whi t e house.go v/ omb/ egov/ c -6 -l ob.ht ml ] .
⁷ Ibid.
⁸ Association of Government Accountants (AGA), Financial Management Shared Services:
A Guide for Federal Users, July 2005, p. 6, at [http://www.agacgfm.org/research/
downloads/SharedServi cesResearchPaper.pdf].
⁹ National Finance Center (NFC), National Finance Center History, at
[http://dab.nfc.usda.gov/about/na-aboutmain.html ].
¹⁰ Memorandum from Linda M. Combs, OMB Controller, to Chief Financial Officers,
“Update on the Financial Management Line of Business and the Financial Systems
Integration Office,” Dec. 16, 2005, p. 1, at [http://www.whitehouse.gov/omb/financial/ffs/
memo_status_fmlob_fsio.pdf].
¹¹ GAO, Financial Management Systems: Additional Efforts Needed to Address Key Causes
of Modernization Failures, p. 32.

should be delayed, critics argue, until these and other risk factors have been
mitigated.
The FMLOB has implications for Congress, in terms of both its appropriations
and oversight responsibilities. Large-scale financial modernization efforts have the
potential to generate more timely and accurate financial data, which are needed for
effective oversight of agency programs and operations. As previously noted,
however, modernization initiatives require substantial funding and often fail to
produce the intended results. The House Subcommittee on Government
Management, Finance, and Accountability, has held several hearings on the initiative,
although no bills have been introduced.
This report provides background information on the FMLOB’s origins and
goals, and presents the arguments of supporters and critics of the initiative. Finally,
it discusses options regarding future implementation.
Background
In the spring of 2004, OMB launched a series of interagency task forces to
determine if services commonly found in numerous agencies, called lines of business,¹²
might be provided in a more efficient manner. The financial management task force
determined that “significant savings” over a 10-year period were possible if the
government consolidated agency financial systems and standardized the related
business processes.¹³ In order to realize these savings, the task force recommended
that the government establish centralized shared service providers (SSPs) to which
agencies would transfer their core financial management functions, rather than invest¹⁴

in modernizing existing agency systems.
¹² OMB, Presidential Initiatives, at [http://www.whitehouse.gov/omb/egov/
c-presidential.html]. In addition to financial management, the original lines of business were
human resources management, grants management, case management, and federal health
information technology. In addition, OMB has launched lines of business initiatives for
budget formulation and evaluation, information technology security, information technology
infrastructure, and geospatial data.
¹³ Testimony of OMB Controller Linda Combs, in U.S. Congress, House Committee on
Government Reform, Subcommittee on Government Management, Finance, and
Accountability, OMB’s Financial Management Line of Business Initiative: Too Much Too^th^nd
Soon?, hearings, 109 Cong., 2 sess., Mar. 15, 2006, at [http://frwebgate.access.gpo.gov/
cgi-bin/useftp.cgi ?IPaddress=162.140.64.181&filename =29332.pdf&directory=/diska/w
ais/data/109_house_hearings ].
¹⁴ Ibid. As defined by the Business Reference Model of the Federal Enterprise Architecture,
a core financial system consists of six subfunctions: accounting, payments, collections and
receivables, budget and finance, asset and liability management, and reporting. See
[ ht t p: / / www.whi t e house.gov/ omb/ egov/ a -3-5-manage-f i nanci a l .ht ml ] .

Shared Service Providers (SSPs)
OMB concurred with the recommendation and worked with the task force to
develop an FMLOB business case that outlined the shared services concept and its
expected benefits.¹⁵ The business case called for consolidating agency financial
systems into a smaller number of government-wide SSPs, each of which could
provide financial management services to multiple agencies. According to the
business case, transferring agency financial management functions to SSPs would
enable to government to:
^!improve its leverage in negotiations with suppliers;
^!reduce future agency development, modernization, and enhancement
expenditures;
^!reduce future agency operation and maintenance expenditures;
^!retire agency “stovepiped” core financial systems;¹⁶
^!re-deploy current agency financial management personnel;
^!improve agency program decision making due to enhanced financial
reporting; and
^!leverage best practices for investment management, procurement,
budgeting, and real estate management.
The business case explained that agencies may select as their service provider
either a private sector contractor or one of a limited number of government agencies
designated by OMB to be federal SSPs.¹⁷ In order to identify potential federal SSPs,
OMB asked agencies with the skills, capabilities, and interest to function as
government-wide financial management service providers to include business cases

¹⁵ Financial Systems Integration Office (FSIO), FMLOB Archive, FY 2004, at
[ h t t p : / / www.f s i o.gov/ f s i o / d o w n l o a d / f ml ob/ f y_04/ FM_LOB_V er si on_4% 5B1% 5D.0_9-1
0-04_Final_Final.doc]. A business case is required by OMB when an agency is requesting
funds for a major information technology project as part of a budget submission (Part 7,
OMB Circular A-11: Planning, Budgeting, Acquisition and Management of Capital Assets.)
The business case is essentially a justification for the investment, and it includes the
agency’s analyses of the costs, benefits, and risks of the project over time.
¹⁶ A “stovepiped” financial system is one that is unique to a single agency.
¹⁷ The terminology describing shared service providers has varied. In the business case, the
term Centers of Excellence referred to both OMB-designated federal agencies and private
contractors. In the Migration Planning Guidance, the term Shared Service Provider (SSP)
is used instead. In an email to the author, OMB’s Legislative Affairs office said the term
“Center of Excellence”applies only to those agencies designated by OMB to act as service
providers.

for doing so as part of their FY2006 budget submissions.¹⁸ OMB then evaluated the
business cases using a “due diligence checklist” that assessed agencies’ past
performance, current capabilities, skill to operate a customer-focused organization,
and adherence to federal policy and regulations.¹⁹ Based on these evaluations, OMB
designated four agencies as federal SSPs: the Bureau of the Public Debt’s
Administrative Resource Center, the Department of the Interior’s National Business
Center, the Department of Transportation’s Enterprise Service Center, and the
General Service Administration’s External Services Division. Only these agencies
are permitted to compete with private firms for FMLOB contracts.
Migration Planning Guidance
In order to explain the initiative to federal agencies and help them prepare for
the transition to a shared services environment, OMB released Version 1 of its
Migration Planning Guidance in September 2006.²⁰ Key provisions of the guidance
are outlined below.
Goals. The stated objective of the FMLOB is to improve the cost, quality, and
performance of government financial management systems by utilizing shared
service providers and implementing other government-wide reforms. Specific goals
of the initiative include:
^!providing timely and accurate data for decision making;
^!strengthening internal controls;
^!providing a competitive alternative for agencies to acquire, develop,
implement, and operate financial systems through shared services;
^!standardizing business systems, processes, and data elements; and
^!providing seamless data exchange between agencies.
Timing. With “limited exception,” the guidance requires that when an agency
identifies a need to upgrade or modernize its core financial system, it must, at that
time, either select an SSP or become designated as a federal SSP itself. OMB
maintains that this policy enables the government to avoid investments on “in-house”
agency systems that would eventually be replaced by more cost effective shared
service providers. An agency may continue to operate its in-house system without
being designated as a federal SSP only if it can demonstrate that doing so is a better

¹⁸ OMB, Presidential Initiatives, at [http://www.whitehouse.gov/omb/egov/
c-6-2-financial.html ].
¹⁹ Ibid.
²⁰ Memorandum from Linda Combs, OMB Controller, to Chief Financial Officers, Chief
Information Officers, Chief Acquisition Officers, and the General Public, Version 1 of the
Financial Management Lines of Business’s Migration Planning Guidance, Sept. 11, 2006,
at [http://www.fsio.gov/fsio/fsiodata/fsio_fmlob_mpg_v1.shtml].

value and lower risk alternative. The guidance provides no estimated timeline for
migration, but OMB has told GAO that it expects most federal agencies to move to
SSPs “within the next seven to eight years.”²¹
Competition. The guidance stated that all agencies are required to conduct
public-private competitions when selecting an SSP, unless OMB grants a deviation.
Additionally, when public-private competitions involve work performed by more
than 10 full-time employees, those competitions are required to follow OMB Circular
A-76, which establishes government-wide guidelines for opening federal jobs to
private bids. The guidance makes A-76 optional for competitions involving work
performed by 10 or fewer full-time agency employees.
Standardization and Transparency. The FMLOB includes an effort to
establish standardized business practices that all agencies would eventually adopt.
For example, it is developing standard processes for core financial management
functions, such as payments and reporting, which would make it easier for agencies
to share data. The FMLOB has also developed a standard government accounting
code, which was released in July 2007.²² In a January 2008 memorandum, OMB
stated that agencies are required to adopt the new business standards when they
migrate to SSPs.²³ There is also an effort to increase transparency by developing a
series of financial system performance metrics, which OMB says would make it
easier for agencies to compare the performance of in-house and SSP financial
systems.
Outstanding Issues. OMB said it intends to update the guidance to provide
more complete information on policy issues that remain under consideration,
including (1) arbitration of bid and contract disputes between federal agencies, (2)
screening and evaluation of SSPs, (3) partnership agreements between federal SSPs
and private firms, and (4) and instructions for smaller agencies on migration
competitions.
Relationship to Other Financial Management Initiatives
OMB argues that the FMLOB will support other government-wide efforts to
enhance federal financial management. In particular, OMB asserts that the FMLOB
will increase the number of agencies in compliance with the Federal Financial²⁴
Management Improvement Act (FFMIA) of 1996. FFMIA establishes standards for

²¹ GAO, Financial Management Systems :Additional Efforts Needed to Address Key Causes
of Modernization Failures, p. 32.
²² FSIO, Common Government-wide Accounting Classification Structure, July 2007, at
[ h t t p : / / www.f s i o.gov/ f si o/ downl oad/ cgac/ CGAC_St r uct u r e _Repor t _07-31-07.pdf ] .
²³ Memorandum from Danny Werfel, OMB Acting Controller, to Chief Financial Officers,
“Update on the Financial Management Lines of Business,” Jan. 28, 2008, p. 2, at
[ h t t p : / / www.whi t e house.go v/ omb/ f i nanci a l / f f s / f ml ob_updat e _01-2008.pdf ] .
²⁴ Linda Combs, OMB Controller, “Improving the Cost, Quality, and Performance of
Financial Systems,” July 26, 2006, at [http://www.whitehouse.gov/results/agenda/

federal agency financial systems, with the objective of ensuring they generate
reliable, useful, and timely information for decision makers.²⁵ Ten years after its
passage, non-compliance with FFMIA remains high, according to GAO. The most
recent data available, only six of the 24 agencies covered by the act were in
substantial compliance — a finding GAO called “a significant challenge to
improving the management of government.”²⁶ OMB has stated that by moving some
agencies to SSPs and standardizing financial processes across the government, the
FMLOB will help agencies select and implement FFMIA-compliant financial
systems.²⁷
OMB also stated that it worked with agencies to align the goals of the FMLOB
with the standards of success defined in the President’s Management Agenda
(PMA).²⁸ The PMA is a series of government-wide and program-specific initiatives
designed to improve the “most apparent deficiencies” in government management
and performance.²⁹ According to OMB, the FMLOB and the PMA are aligned in two
ways. First, the “overarching objective” of the FMLOB is ensuring that federal
managers have accurate and timely financial information for decision making, which
is also one of the standards for success comprising the Improved Financial
Performance initiative of the PMA.³⁰ In addition, OMB has stated that the FMLOB
supports the PMA goal of expanding electronic government, although it did not
reference any specific points where the two initiatives overlap.³¹
Support and Criticisms of the FMLOB
Federal financial managers, policy advisory groups, and private contractors all
acknowledge that the government might improve the cost and quality of its financial
systems through consolidation and standardization. Support for the initiative is

²⁴ (...continued)
fy06q3-offmupdate.pdf]
²⁵ GAO, Financial Management: Improvements Under Way but Serious Financial Systems
Problems Persist, Sept. 2006. FFMIA requires agencies to have systems that comply
substantially with: (1) federal financial management system requirements, (2) applicable
federal accounting standards, and (3) the Standard General Ledger at the transaction level.
²⁶ Ibid.
²⁷ Linda Combs, OMB Controller, “Improving the Cost, Quality, and Performance of
Financial Systems,” July 26, 2006.
²⁸ Testimony of OMB Controller Linda Combs, Mar. 15, 2006.
²⁹ OMB, The President’s Management Agenda, 2001, p. 1, at [http://www.whitehouse.gov/
omb/budget/fy2002/mgmt.pdf]. For more information on the PMA, see CRS Report
RS21416, The President’s Management Agenda: A Brief Introduction, by Virginia A.
McMurtry.
³⁰ The White House, “Scorecard Standards for Success,” at [http://www.whitehouse.gov/
results/agenda/standardsforsuccess7-24-2006.pdf].
³¹ OMB, E-Gov Presidential Initiatives, at [http://www.whitehouse.gov/omb/egov/
c-6-2-financial.html ].

qualified, however, by concerns over the pace of implementation, which is already
underway at several agencies. By the time OMB released the Migration Planning
Guidance in September 2006, the Department of Labor had awarded a contract to a
private firm for hosting components of its financial system, the Department of
Commerce had announced plans to begin consolidating its financial management
platforms, the Office of Personnel Management had selected the Bureau of Public
Debt as its SSP, and the Environmental Protection Agency had begun evaluating
proposals for software, integration, and hosting services.³² Some observers say that
the initiative, given its scope and complexity, is moving too quickly, and that agency
migration efforts should be delayed in order to reduce the risk of costly mistakes.³³
A survey of Chief Financial Officers (CFOs) and other federal financial
managers, for example, found “almost no” opposition to using SSPs in principle, so
long as the quality of service and the cost of migration met expectations.³⁴ The
survey also revealed that one of the “greatest fears” of agency officials was that they
would invest millions of dollars into migrating to SSPs, only to discover that their
service provider was not capable of delivering the promised services. One reason for
this concern was that some of the designated federal SSPs were components of
departments that were themselves not FFMIA compliant.³⁵ Some managers also
suggested that small agencies — those with a budget of less than $100 million —
might realize greater gains in efficiency from migrating to SSPs than larger agencies.
Overall respondents said that they wanted more evidence of the capabilities of
potential SSPs, more guidance on agency recourse should an SSP fail to meet
performance expectations, and more time to consider their options before migrating.
Similarly, a report by the National Academy of Public Administration (NAPA)
endorsed the objectives of the FMLOB while expressing concerns about its
implementation. In the report, which was prepared at the request of the House
Subcommittee on Government Management, Finance, and Accountability, NAPA
stated that the move to a shared services environment “makes a great deal of sense,”
citing its potential to reduce operating costs and free agency CFOs and their staff to
focus on core program activities.³⁶ Many of the CFOs interviewed for the report
were, however, concerned about moving core accounting and reporting functions
outside their purview, an opinion that NAPA shared.³⁷ The report also said that
economies of scale might not always result from consolidation, particularly if some

³² GAO, Financial Management Systems: Additional Efforts Needed to Address Key Causes
of Modernization Failures, Mar. 2006, p. 32.
³³ Testimony of Joe Kull, PricewaterhouseCoopers, in U.S. Congress, House Committee on
Government Reform, Subcommittee on Government Management, Finance, and
Accountability, OMB’s Financial Management Line of Business Initiative: Too Much Too^th^nd
Soon?, hearings, 109 Cong., 2 sess., Mar. 15, 2006.
³⁴ Ibid., testimony of Grant Thornton partner Clifton Williams.
³⁵ GAO, Financial Management: Improvements Underway but Serious Financial Systems
Problems Persist, Sept. 2006, p. 15.
³⁶ National Academy of Public Administration, Moving from Scorekeeper to Strategic
Partner: Improving Financial Management in the Federal Government, Oct. 2006, p. 23.
³⁷ Ibid., pp. 22-23.

agencies contract with multiple SSPs for different elements of their financial
management system. NAPA recommended delaying further migrations to allow
additional review, discussion, and analysis of these issues.
Private sector observers have also offered qualified support for the initiative.
At FMLOB hearings held in March 2006, Stan Soloway, the president of the
Professional Services Council (PSC), called the strategic underpinnings of the
initiative “sound and rational ... the right thing to do.”³⁸ He cautioned, however, that
the benefits of shared services might not be realized if agency leadership and staff are
not “involved and fully invested” in the initiative. Additionally, he questioned
whether sufficient attention had been paid to the need for the FMLOB to connect
with other lines of business, particularly the Human Resources Line of Business
(HRLOB), where travel systems will need to interface with financial systems. If poor
planning causes the government to change its requirements during implementation,
Soloway said, then the costs of the initiative might rise.
PricewaterhouseCooper partner Joe Kull also testified at the March 2006
hearings.³⁹ Kull, a former OMB deputy controller, said agencies should not be
required to meet an “arbitrary timeframe” for implementation, asserting that
government projects like FMLOB have often failed because agencies had not
invested sufficient resources in educating, training, and communicating with
employees about the initiative. Kull also said that it was “critical” for agencies to
improve their internal controls prior to migration — even though those improvements
might take several years — because core systems are only as good as the data flowing
into them. Agency financial systems would thus continue to be limited by weak
internal controls even after migration, and presumably those problems would be more
difficult to correct when core functions were hosted by a third party.
One union, the American Federation of Government Employees (AFGE), has
strongly criticized the initiative, largely over OMB’s policy on the application of
Circular A-76 to migration competitions. As previously discussed, agencies are only
required to follow the provisions of A-76 when migrating more than 10 full-time
positions to an SSP, and A-76 is optional when 10 or fewer full-time employees are
involved. In hearings on the FMLOB held in June 2006, the AFGE argued that by
making A-76 optional in some cases, agencies were, in effect, authorized to transfer
federal jobs to private contractors without giving agency employees the opportunity
to compete for them, a practice called “direct conversion.”⁴⁰ An OMB official said

³⁸ Testimony of Professional Services Council President Stan Soloway, in U.S. Congress,
House Committee on Government Reform, Subcommittee on Government Management,
Finance, and Accountability, OMB’s Financial Management Line of Business Initiative: Do^th
Recent Changes to the Implementation Guidance Clarify the Rules? hearings, 109 Cong.,^nd

2 sess., June 28, 2006.

³⁹ Testimony of PricewaterhouseCoopers partner Joe Kull, Mar. 15, 2006.
⁴⁰ Testimony of American Federation of Government Employees Public Policy Director
Jacque Simon, in U.S. Congress, House Committee on Government Reform, Subcommittee
on Government Management, Finance, and Accountability, OMB’s Financial Management
Line of Business Initiative: Do Recent Changes to the Implementation Guidance Clarify the
(continued...)

the AFGE had misinterpreted the policy, stating that while A-76 is optional in some
instances, a public-private competition is required for every migration, regardless of
the number of employees involved.⁴¹ OMB’s Migration Planning Guidance, released
three months after the hearings, clarifies this point, explicitly stating that direct
conversions are not authorized.⁴²
Concluding Observations
Observers generally agree that there are potential benefits to moving agency core
financial systems to shared service providers, including reduced costs and enhanced
data for use in decision making. The crux of the FMLOB debate is not whether
consolidation should take place, but when. OMB argues migration should proceed
as soon as agencies identify a need to upgrade their systems, while critics say
migration should not take place until potential risks have been adequately addressed.
This does not mean, however, that the only available options are to proceed with
implementation “full speed ahead,” or bring it to a standstill. Two additional
considerations are described below.
Standardization and Transparency. As previously noted, the FMLOB has
undertaken three efforts in addition to migration that might improve federal financial
management. Work on these less-visible initiatives — developing performance
metrics, standardizing business processes, and implementing the new government-
wide accounting code — might continue independently of any migration timetable.
In this way, the government would have the earliest opportunity to realize the
potential benefits of these efforts, such as an improved ability to compare financial
data across agencies.
Pilot Projects. Migration to SSPs might be initiated through a pilot project.
It is not uncommon for large-scale management reform initiatives to begin with pilot
projects. Typically, a pilot project is launched as a way to observe the change
process under controlled circumstances: the agencies involved could be limited in
number and carefully chosen, implementation could be closely managed, and the
consequences could be analyzed and discussed by the initiative’s stakeholders. The
results of a pilot project might lead to changes in the larger implementation process,
in order to maximize the likelihood of success.

⁴⁰ (...continued)
Rules?, hearings, 109^th Cong., 2^nd sess., June 28, 2006. Prior to 2003, agencies could convert
public jobs to the private sector without holding a public-private competition. Direct
conversions were eliminated in the 2003 revisions to A-76.
⁴¹ Daniel Pulliam, “Guidelines for financial consolidation draw fire,” GovExec.com, Sept.

25, 2006, at [http://www.govexec.com/story_page.cfm?articleid=35105&sid=6].

⁴² OMB, Version 1 of the Financial Management Lines of Business’s Migration Planning
Guidance, Sept. 11, 2006, p. 15, at [http://www.fsio.gov/fsio/fsiodata/
fsio_fml ob_mpg_v1.shtml ].

Some have argued that a pilot project is unnecessary because SSPs have already
demonstrated their ability to successfully host agency core financial systems. Not all
agencies, however, appear to share this view. In an interview with Government
Computer News, the Deputy Chief Financial Officer at the Department of Education
noted that some large agencies are hesitant to migrate because they “don’t see any
real examples of a shared-services provider handling a large external customer that
has a tremendous amount of volume and complexity in their financial business
processes.”⁴³ Large agencies might also be concerned about migrating to an SSP
after the Office of Personnel Management (OPM) cancelled its shared-services
contract. In 2005, OPM signed a contract with an SSP, selecting the Bureau of
Public Debt’s Administrative Resource Center (ARC). In 2006, OPM cancelled the
contract after determining that the ARC could not meet its service requirements. The
following year, another large agency, USDA, signed a $102.6 million contract with
Accenture, a private sector SSP, to consolidate and modernize its financial
management systems.⁴⁴ The migration process at USDA might be closely observed
by those federal financial managers who are unsure whether it is feasible and
desirable for large agencies to shift core financial operations to an SSP.

⁴³ Mary Mosquera, “The Big Issue for FMLOB: Small agencies see the benefits in shared
service providers, but large agencies don’t want to give up their control,” GCN.com, Feb.

19, 2007, at [http://www.gcn.com/print/26_04/43164-1.html?topic=Lines_of_Business].

⁴⁴ Federal Business Opportunities wesbsite, “Award Notice — Replacement of the USDA
Financial Management System,” Sept. 10, 2007, at [http://www.fbo.gov/spg/USDA/
OPPM/POD/Awards/AG-3142-S-06-0011.html ].