Financial management providers ill-equipped to take on large customers

Wednesday - 4/9/2014, 4:11am EDT

Jason Miller reports.

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A metric of success for federal shared services is how many agencies are using the capability. Federal financial management shared service providers are facing an uphill battle to meet that metric.

One of the biggest challenges to making this second attempt at financial management shared services in the last decade successful is federal providers' ability to ramp up in a timely manner.

Interior, Transportation, Treasury and possibly as many as four other agencies are gearing up to accept 40,000 or more new customers at a time over the course of the next few years.

As federal financial management shared services providers, these agencies need help in the form of changes to law and policy to meet those goals.

Experts say only by letting these providers act more like private sector businesses will federal shared services find success.

"Scalability is always a concern whether you are migrating two or three small to medium agencies or one or two large agencies. The reason it's a concern is because you can't really hire any additional resources until you have a signed interagency agreement. So to the extent you have that signed interagency agreement, that's when you start the ramp up process," said Joe Ward, the director of the Interior Business Center, one of the four current civilian agency financial management shared service providers. "We really do not have the ability to ramp before we have funding to do so. So scalability is always an issue. However that said, we are looking at some creative ways, working with industry, working with the Treasury Department and working with our human resources folks to do some things in a creative fashion that would allow us to ramp up much quicker and also legally."

Capacity issues remain unsolved

And Interior isn't alone, Ward said because few, if any, of the other federal shared service providers have that ability to use "profit" to prepare for the influx of new customers.

In part 2 of the special report, Shared Services Revisited, Federal News Radio explores the long-standing capacity challenges that current and new financial management shared service providers will have to overcome in the coming years to meet the growing demands of agency customers.

The Office of Management and Budget requires agencies to modernize financial management systems only through federal shared service providers (SSPs). In a March 2013 memo, OMB detailed its plans to reduce costs and duplication across the government through the use of federal SSPs.

But many of the same questions limited the success of this initiative in the mid-2000s, including whether the shared service providers have the capacity to handle large cabinet level agencies.

Over the course of the last seven years, no cabinet level agency moved to a federal shared service provider. The Labor Department outsourced to a private sector provider. The Small Business Administration unsuccessfully followed suit to a different private sector company.

But over the course of the next five to 10 years and starting this year with the departments of Commerce and Housing and Urban Development, and the Coast Guard, large agencies are expected to let go of their financial management systems and take advantage of a multi-tenant set up that is widely considered an industry best practice.

OMB and Treasury's Office of Financial Innovation and Transformation (OFIT), which is managing the financial management shared services initiative, are trying to address the challenges providers face.

Ward said Interior, for example, has asked OMB to help create a franchise fund for financial management services. The franchise fund would let Interior retain earnings from customer payments of up to 4 percent to be used for technology upgrades and other investments.

Ward said Interior currently uses a working capital fund, which forces it to break even every year, and thus can't prepare for new customers adequately.

Implementation know-how at a premium

But it's about more than just money and people. The question is whether Interior, Transportation, Treasury or any of the new providers can handle more than one large agency every few years.

Federal and private sector experts say migrating to a shared service provider is extremely complex.

"Technologywise, the capability is certainly there. The biggest challenge there is going to be is the change management and governance, as well as systems consolidation, always produces a financial risk of migrating multiple agencies at one time," said Kevin Greer, a managing director with Accenture federal services. "All of that are questions still on the horizon, and OMB and OFIT certainly recognize they need to provide a solution to help with scalability to make this really work."