Agencies still resist outsourcing financial management, expert says

This March marks the third anniversary of an Office of Management and Budget program to consolidate financial management systems across government, but some agencies still are resisting the move, according to an industry expert.

Under OMB's financial management line of business, agencies are asked to outsource their operations to shared service centers, which are run by an agency that has set itself up as a centralized clearinghouse for those services. By outsourcing the operations, agencies can reduce the IT infrastructure needed to support billing and accounting systems such as servers, software, data warehousing and support personnel.

For fiscal 2008 and in fiscal 2009 budget requests, agencies collectively have set aside more than $1.75 billion to comply with the financial management line of business, according to a report released March 26 by INPUT, a federal consulting firm based in Reston, Va. "This is more about the consolidation of the IT infrastructure than anything else," said Vajira Ranaviraja, a federal analyst at INPUT. "Many agencies are still running legacy financial systems that are X numbers of years old. Basic accounting principles are replicated across the government; this is just trying to use economies of scale and maintain a physical infrastructure to support these services."

Some Cabinet-level agencies have resisted outsourcing to a shared service center because they already are consolidating many IT operations and because of the common fear that they will lose control of their financial operations, Ranaviraja said. "To jump from that stage to someone else managing their financial management software, it's a big step," he said. "The problem in general is ego, giving up control. They are saying we do financial management in a different way. But it's a basic process. There are only so many ways to do this."

Smaller agencies have adapted to the shared services model faster than larger agencies, according to the INPUT report. To date, 70 small and independent agencies have signed up with a shared service center.

But some Cabinet-level departments are moving forward. Federal and commercial providers are competing to take over the Labor Department's financial management operations, Ranaviraja said. If Labor awards its operations contract to a commercial provider, it could provide the incentive for other agencies to follow, he added.

The Agriculture Department has outsourced its financial management operations to Accenture rather than to a federal shared service center. However, Ranaviraja does not believe other agencies will follow Agriculture's lead. "What really has to happen is that departments have to get buy-in from their sub-agencies," he said. "Part of the process of moving toward shared service centers is getting buy-in for IT consolidation as a whole."

Four agencies offer financial management services to agencies: the General Services Administration and the departments of Transportation, Interior and Treasury. GSA should award the contract for the commercial shared service centers in fiscal 2008, but the program appears to be on hold, Ranaviraja said. Both commercial and federal shared service centers will compete for the business of agencies. GSA was not able to provide any information on the status of the commercial shared service center contract before this article was posted.