oversight

Financial Management Systems: Status of OMB's Review of Financial System Projects

Published by the Government Accountability Office on 2012-02-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

United States Government Accountability Office
Washington, DC 20548


    February 8, 2012

    The Honorable Thomas R. Carper
    Chairman
    The Honorable Scott P. Brown
    Ranking Member
    Subcommittee on Federal Financial Management, Government Information, Federal Services,
     and International Security
    Committee on Homeland Security and Governmental Affairs
    United States Senate

    Subject: Financial Management Systems: Status of OMB’s Review of Financial System Projects

    This letter transmits the enclosed briefing slides that we presented to your staff on February 1,
    2012, in response to your request that we review the status of the Office of Management and
    Budget’s (OMB) oversight of federal financial system projects. 1 In June 2010, OMB announced
    an initiative to review federal agency financial system modernization projects at the 24 Chief
    Financial Officer (CFO) Act agencies. 2 OMB provided guidance on this initiative in its June 2010
    Memorandum M-10-26, Immediate Review of Financial Systems IT Projects. 3 The
    memorandum provided instructions for CFO Act agencies to revise financial system
    modernization projects in accordance with three guiding principles and to submit their revised
    project plans for review.

    As discussed with your staff, our objectives were to describe: (1) the approach OMB followed to
    develop and implement the June 2010 memorandum; (2) the changes agencies reported
    making to their financial system project plans as a result of the June 2010 memorandum; and
    (3) OMB’s future plans for oversight of financial system modernization projects.

    To address these objectives, we:
        met with OMB staff and Financial Systems Advisory Board (FSAB) 4 members to
          determine the approach OMB followed to develop and implement the June 2010
          memorandum;

    1
      See enc. I for our briefing slides.
    2
      CFOs were established under 31 U.S.C. § 901(b) for 24 specific agencies that are subject to the CFO Act, as
    amended: the Departments of Agriculture (USDA), Commerce, Defense (DOD), Education, Energy, Health and
    Human Services, Homeland Security, Housing and Urban Development, the Interior, Justice (DOJ), Labor, State,
    Transportation, the Treasury, and Veterans Affairs; Environmental Protection Agency; National Aeronautics and
    Space Administration; Agency for International Development; General Services Administration (GSA); National
    Science Foundation; Nuclear Regulatory Commission; Office of Personnel Management (OPM); Small Business
    Administration; and Social Security Administration.
    3
      OMB Memorandum M-10-26, Immediate Review of Financial Systems IT Projects (Washington, D.C., June 28,
    2010).
    4
      In addition to the issuance of the June 2010 memorandum, OMB established FSAB under the CFO Council. FSAB
    was comprised of three CFOs and three Chief Information Officers (CIOs) from major agencies. The FSAB function
    was to make recommendations to OMB, as requested, on financial system projects reviewed under the June 2010
    memorandum.




    Page 1                            GAO-12-184R Status of OMB’s Review of Financial System Projects
        conducted a survey of the 24 CFO Act agencies to obtain their perspectives on OMB’s
         oversight process, its impact on agency financial system projects, and future plans for
         financial system projects; and
        interviewed OMB staff to determine OMB’s future plans for oversight of financial system
         modernization projects.

We conducted our work from January 2011 through February 2012 in accordance with all
sections of GAO’s Quality Assurance Framework that are relevant to our objectives. The
framework requires that we plan and perform the engagement to meet our stated objectives and
to discuss any limitations in our work. We believe that the information and data obtained, and
the analysis conducted, provide a reasonable basis for any findings and conclusions. See
enclosure II for further details on our scope and methodology. Enclosure III provides a list of
financial system projects that OMB or FSAB reviewed. Enclosures IV and V provide the survey
results on the reported impact and challenges, respectively, of implementing the June 2010
memorandum.

In summary, OMB developed the June 2010 memorandum in consultation with the CFO Council
and created FSAB to assist in its oversight and review of agency financial system projects as
announced in the June 2010 memorandum. 5 In November 2010, OMB reported an overall
budget savings of $1.6 billion as a result of decisions to postpone, cancel, or revise the scope of
projects initially reviewed. In response to our survey, most agencies reported no change or that
they did not know how the long-term project cost or completion time would change as a result of
the actions, decisions, and recommendations related to the June 2010 memorandum and
oversight process. However, several agencies reported that they narrowed the scope of their
current project plans to focus on implementing more critical business needs first as a result of
the June 2010 memorandum. They noted that this rescoping had the effect of delaying their
efforts to improve accounting and reporting functions. Agencies also reported other challenges
related to their financial system projects, including standardization of internal processes or data
and funding delays. According to OMB staff, their plans for oversight of financial systems
include (1) continuing to review agencies’ financial system projects and (2) issuing a revised
Circular A-127 that will serve as guidance on the issues noted in the June 2010 memorandum.
OMB did not provide details or time frames on the planned issuance of the revised circular. 6

Agency Comments

We requested comments on a draft of the briefing slides and related enclosures from the
Director of the Office of Management and Budget or his designee. On January 13, 2012, staff
from OMB’s Office of Federal Financial Management provided oral comments and stated that
they generally agreed with the information presented. They also provided technical comments,
which we incorporated as appropriate.

                                                     -----

As agreed with your offices, unless you publicly announce the contents of this report earlier, we

5
 The CFO Council is an organization comprised of the CFOs of the 24 CFO Act agencies and senior officials in OMB
and the Department of the Treasury who work collaboratively to improve financial management in the U.S.
government.
6
 OMB Circular A-127 prescribes policies and standards for executive departments and agencies to follow concerning
their financial management systems. See OMB Circular A-127, Financial Management Systems (Washington, D.C.,
Jan. 9, 2009).




Page 2                             GAO-12-184R Status of OMB’s Review of Financial System Projects
plan no further distribution until 30 days from the report date. At that time, we will send copies to
the Chairman and Ranking Member, Subcommittee on Government Organization, Efficiency,
and Financial Management, House Committee on Oversight and Government Reform; the
Director of OMB; and other interested parties. The report also will be available at no charge on
the GAO website at http://www.gao.gov. If you or your staffs have any questions concerning this
report, please contact Paula Rascona at rasconap@gao.gov or (202) 512-9816, or Nabajyoti
Barkakati at (202) 512-2700 or barkakatin@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page of this report. GAO
staff who made major contributions to this report are listed in enclosure VI.




Paula M. Rascona
Director
Financial Management and Assurance




Nabajyoti (Naba) Barkakati
Chief Technologist
Applied Research and Methods
Center for Engineering and Technology

Enclosures - 6




Page 3                         GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                     Enclosure I




Financial Management Systems: Status of OMB’s Review of
Financial System Projects


Briefing for Staff Members of the
Subcommittee on Federal Financial Management, Government Information, Federal
Services, and International Security
Committee on Homeland Security and Governmental Affairs
United States Senate
February 1, 2012




Page 4             GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                            Overview


Introduction

Objectives

Background

Results

Enclosures:

   II: Scope and Methodology
   III: Financial System Projects Reviewed by OMB/FSAB
   IV: Reported Impact of Implementing OMB Guidance
   V: Reported Challenges of Implementing OMB Guidance
   VI: GAO Contacts and Staff Acknowledgments




Page 5                                        GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                                    Introduction


    • As we have reported in our audit of the U.S. Government’s Financial Statements, 1
      long-standing financial management system weaknesses at several large Chief
      Financial Officers (CFO) Act agencies, 2 along with the size and complexity of the
      federal government, continue to present a formidable management challenge in
      providing accountability to the nation’s taxpayers.
    • Federal agencies continue to invest large amounts of resources in financial system
      modernization efforts. These efforts have too often cost more than they should, taken
      longer than necessary to deploy, and not delivered solutions that met agency needs.




1
 See our audit report on the federal government’s 2011 and 2010 consolidated financial statements that was incorporated into the
2011 Financial Report of the United States Government published by the Department of the Treasury (Dec. 23, 2011).
2
 CFOs were established under 31 U.S.C. § 901(b) for 24 specific agencies that are subject to the CFO Act, as amended: the
Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, Housing and
Urban Development, the Interior, Justice, Labor, State, Transportation, the Treasury, and Veterans Affairs; Environmental Protection
Agency; National Aeronautics and Space Administration; Agency for International Development; General Services Administration;
National Science Foundation; Nuclear Regulatory Commission; Office of Personnel Management; Small Business Administration; and
Social Security Administration.
Page 6                                                                     GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                                    Introduction


    • Although federal financial system modernization efforts have proven to be
      challenging, they are critical to instituting strong financial management as called for
      by the CFO Act of 1990, Federal Financial Management Improvement Act of 1996
      (FFMIA), and other financial management reform laws. 3
    • In June 2010, the Office of Management and Budget (OMB) announced an initiative
      to review federal agency financial system modernization projects at the 24 CFO Act
      agencies as part of its overall strategy to reform how the federal government
      purchases and uses information technology (IT)–cutting waste and saving money.
      OMB provided guidance on this initiative in Memorandum M-10-26, Immediate
      Review of Financial Systems IT Projects (June 2010 memorandum) and provided
      instructions for agencies to submit revised financial system modernization project
      plans for review.




3
 The CFO Act calls for the improvement of financial management systems in departments and major agencies throughout the federal
government to achieve the systematic measurement of performance; the development of cost information; and the integration of
program, budget, and financial information for management reporting. FFMIA builds on the foundation laid by the CFO Act by requiring
CFO Act agencies to have financial management systems that can generate reliable, useful, and timely information with which to make
fully informed decisions and to ensure accountability on an ongoing basis.
Page 7                                                                     GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                Objectives


   As discussed with the staff, our objectives were to describe:
   (1) the approach OMB followed to develop and implement the June 2010
   memorandum;
   (2) the changes agencies reported making to their financial system project plans as a
   result of the June 2010 memorandum; and
   (3) OMB’s future plans for oversight of financial system modernization projects.


   (See enclosure II for details on our scope and methodology.)




Page 8                                              GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                             Background


   • OMB plays a central role in setting federal financial management policy and for
     reviewing and evaluating IT expenditures, including financial systems, across the
     federal government. OMB uses the IT spending information submitted by agencies
     during the budget formulation process to review requests for agency financial system
     modernization projects and other IT spending.
   • The CFO Act established OMB’s Office of Federal Financial Management, which has
     responsibility to provide overall direction and leadership to the executive branch on
     financial management matters by establishing policies and requirements and by
     monitoring the establishment and operation of federal government financial
     management systems.
   • Over the years, OMB has provided oversight, issued guidance, and started several
     initiatives with the goal of improving federal agency investments in financial system
     modernization efforts.
        o For example, prior to the June 2010 memorandum, OMB initiated the financial
           management line of business initiative in March 2004, in part, to reduce the cost
           and improve the quality and performance of federal financial management
           systems by leveraging shared service solutions and implementing other reforms.




Page 9                                              GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                                  Background


    • In September 2010, we noted that key issues associated with OMB’s approach for
      financial system modernizations announced in the June 2010 memorandum needed
      to be addressed, such as clearly defining the criteria to be used to evaluate agency
      financial system modernization projects. 4 According to OMB staff, these key issues
      will be addressed in the revised Circular A-127.5




4
 GAO, Financial Management Systems: Experience with Prior Migration and Modernization Efforts Provides Lessons Learned for New
Approach, GAO-10-808 (Washington, D.C.: Sept. 8, 2010).
5
 OMB Circular A-127 prescribes policies and standards for executive departments and agencies to follow concerning their financial
management systems. See OMB Circular A-127, Financial Management Systems (Washington, D.C.: Jan. 9, 2009).
Page 10                                                                  GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                          Results
                                                                                                       Objective 1

OMB’s approach to develop and implement the June 2010 memorandum
Figure 1 shows the timeline of key events that occurred in the development and
implementation of the June 2010 memorandum.
Figure 1: Timeline of Key Events Related to June 2010 Memorandum




   • A forum was held by the President on January 14, 2010, to discuss, among other
     topics, IT best practices. The White House forum included 50 Chief Executive
     Officers from a broad range of private industries.


Page 11                                                  GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                                          Results
                                                                                                                       Objective 1

OMB’s approach to develop and implement the June 2010 memorandum
(continued)
    • After the forum, OMB staff developed a series of IT reform initiatives, including a draft
      memorandum for the immediate review of financial systems IT projects. On May 27,
      2010, OMB released the draft memorandum to the CFO Council for comment. 6
    • On June 28, 2010, OMB issued its final Memorandum M-10-26, which set forth
      guiding principles for the acquisition and project management of financial systems.
      The primary goals stated in the memorandum were to reduce costs, shorten time
      frames, and reduce risks associated with agency financial system projects. OMB’s
      June 2010 memorandum required CFO Act agencies to
          o halt the issuance of new task orders or new procurements for all financial system
            projects with $20 million or more in planned spending on development or
            modernization expenses, pending an immediate review and approval from OMB;
            and
          o within 60 days provide OMB with revised project plans to be evaluated against
            the three guiding principles outlined in the memorandum.


6
 The CFO Council is an organization comprised of the CFOs of the 24 CFO Act agencies, senior officials in OMB, and the Department
of the Treasury who work collaboratively to improve financial management in the U.S. government.
Page 12                                                                  GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                                             Results
                                                                                                                          Objective 1

June 2010 Memorandum - Three Guiding Principles
  1. Agencies are to split financial system modernization projects into smaller, simpler
     segments with clear deliverables (i.e., project segmentation). The memo states that
     project segments should generally take no longer than 90-120 days to achieve
     specific project milestones. Furthermore, the overall length of a development
     project—which includes the planning, development, and implementation phases of
     the project—should not exceed 24 months.
    2. Agencies are to focus on the most critical business needs first. According to the
       memo, agencies should prioritize the most critical financial functions first and
       consider functions of lesser importance for subsequent delivery. 7
    3. Agencies are to provide ongoing, transparent project oversight, which includes
       identifying and monitoring milestones, warning flags, and stop points over the course
       of the segment life-cycle.




7
 The June 2010 memorandum does not specifically identify financial functions or those that are the most critical. However, the major
functions supported by a core financial system are defined by the Office of Federal Financial Management’s Core Financial System
Requirements as: System Management, General Ledger Management, Budgetary Resource Management, Payment Management,
Receivable Management, Cost Management, and Fund Balance with Treasury Management.
Page 13                                                                     GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                     Results
                                                                                                  Objective 1

OMB established FSAB to perform project reviews
In addition to the issuance of the June 2010 memorandum, OMB created the Financial
Systems Advisory Board (FSAB) to make recommendations to OMB, as requested, on
the projects being reviewed under the June 2010 memorandum. To select the six-
member board, OMB staff told us that they focused on three criteria.
   • Diversity of members’ perspectives: To provide a balanced perspective for reviews,
     OMB selected three CFOs and three Chief Information Officers. Since modernization
     projects involve multiple levels of agency staff, OMB selected officials who held
     departmentwide positions and others who held positions in specific bureaus within an
     agency to further diversify FSAB.
   • Significant, relevant experience: OMB sought to select officials with significant and
     relevant experience with financial system modernization projects to help ensure that
     FSAB members understood the processes and challenges involved with these
     projects.
   • Availability to participate in reviews: Given the time commitment necessary to
     conduct the reviews, OMB also took into account the availability of potential
     members to serve both as FSAB members in addition to performing their regular
     duties.

Page 14                                             GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                      Results
                                                                                                   Objective 1

OMB established FSAB to perform project reviews (continued)
FSAB coordinated with OMB and created a charter defining the purpose, scope, and
responsibilities of the board.
   • FSAB members defined the methodology for reviewing agencies’ financial systems
     modernization projects based on the three guiding principles provided in the June
     2010 memorandum.
   • The FSAB charter outlines the board’s responsibility to provide OMB with
     recommendations, advice, and support. It also states that the board is not chartered
     to (1) provide oversight of, or decisions to, the agencies or (2) make final decisions
     on behalf of, or binding on, the agencies or OMB.
   • According to the charter, subsequent to initial project reviews and approval of revised
     plans, OMB will convene the board, as it deems necessary, on a quarterly basis
     through the end of fiscal year 2012.




Page 15                                              GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                       Results
                                                                                                    Objective 1

OMB announced projects to be reviewed
   • On July 8, 2010, OMB announced a draft list of 20 agency projects for review at 18 of
     the 24 CFO Act agencies. Based on further discussions and selections made by the
     agencies, OMB or FSAB reviewed 31 projects at all 24 CFO Act agencies, including
     10 projects that were fully deployed.
   • The key characteristics of projects reviewed varied significantly. For example,
     projects were described by agency officials at various life-cycle stages of
     development:
          o Planning or pre-deployment (planning, solicitation, pre-deployment): 13 projects
          o Initial deployment or phased deployment (being deployed): 6 projects
          o Fully deployed (operations and maintenance): 10 projects
          o Other—mixed cycle (multiple phases of development): 2 projects
   • In October 2011, OMB staff informed us that the Department of Defense (DOD)
     project reviews were ongoing and that OMB utilized a process separate from the
     FSAB reviews to evaluate DOD’s compliance with the June 2010 memorandum.



Page 16                                               GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                    Results
                                                                                                 Objective 1

FSAB conducted project reviews from July 2010 through November 2010
Based on our interviews with FSAB members:
   • FSAB relied on project plans submitted by agencies (excluding DOD) in accordance
     with the template provided in OMB’s June 2010 memorandum.
   • Some agencies provided additional information for the review such as architectural
     diagrams, project management plans, risk management plans, and implementation
     plans. OMB provided auditor reports to FSAB for some agencies to supplement this
     information.
   • After reviewing the information provided, FSAB determined the need to meet with
     selected agencies. In those meetings, agencies presented their project plans and
     addressed any questions from the board.
   • Board members did not participate in FSAB discussions of their own agency, but
     some participated in the presentation of their agency’s project.
   • FSAB prepared memorandums summarizing its findings and recommendations on
     each agency project reviewed and provided these to the affected agencies and OMB
     for a fact check before submitting its written assessments to OMB.


Page 17                                            GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                                         Results
                                                                                                                      Objective 1

OMB staff reviewed the FSAB recommendations and issued decision
memorandums to agencies
    • OMB reviewed FSAB recommendations and issued decision memos to 21 agencies,
      including 2 agencies in September 2010, 18 agencies in January 2011, and 1 agency
      in October 2011. 8 As of October 2011, OMB’s review of 3 agencies, covering 7
      projects, was still in process with the final decision memos pending.
    • In the final decision memos, OMB reported its decision for each project and made
      recommendations to agencies (if applicable). OMB also assigned each project a risk
      level, which determines the frequency of OMB follow-up reviews.
    • Figure 2 summarizes OMB’s decisions and assigned risk levels by project life-cycle
      phase for 24 projects at 21 agencies.
    (See enclosure III for a detailed list of projects reviewed with the phase of development;
    project budget; OMB-designated risk level; and decision, if issued.)




For one of these agency projects, we were unable to obtain the issued decision memo from the agency or OMB.
8


Page 18                                                                 GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                                                              Results
                                                                                                                                           Objective 1

Figure 2: OMB Decisions and Assigned Risk Levels of Projects




Note: For projects identified as “partially approved,” OMB only approved certain parts of the agency’s project to proceed at the time.




Page 19                                                                                      GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                     Results
                                                                                                  Objective 1

OMB staff reviewed the FSAB recommendations and issued decision
memorandums to agencies (continued)
   • As indicated in figure 2, OMB generally approved projects that were fully deployed
     and designated them as low risk.
   • In November 2010, OMB reported on the results of projects initially reviewed,
     including an overall budget savings of $1.6 billion as a result of changes to agency
     project plans made in response to OMB’s June 2010 memorandum. This amount
     included projects that agencies postponed, canceled, or revised in scope.
   • According to the June 2010 memorandum, beginning in fiscal year 2011, funding for
     financial system investments will be apportioned on a quarterly basis, as appropriate.
     Throughout the fiscal year, OMB will assess whether an investment should receive
     funding for the next segment. If approval is not granted, OMB will work with the
     affected agency to redirect funding pursuant to existing reprogramming requirements.
     According to the June 2010 memorandum, OMB may employ flexibility regarding
     funds control for projects that OMB has not designated as high-risk or that have a
     proven track record of achieving specific milestones within well-defined segments.




Page 20                                             GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                    Results
                                                                                                 Objective 2

Reported Impact on Agencies
In response to our survey, most agencies reported no change or that they did not know
how the long-term project cost or completion time would change as a result of the actions,
decisions, and recommendations related to the June 2010 memorandum and oversight
process. However, several agencies reported that they narrowed the scope of their
current project plans to focus on implementing more critical business needs first as a
result of the June 2010 memorandum. They noted that this rescoping had the effect of
delaying their efforts to improve accounting and reporting functions. Agencies also
reported other challenges related to their financial system projects, including
standardization of internal processes or data and funding delays.




Page 21                                            GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                         Results
                                                                                                      Objective 2

Figure 3: Agency Reported Estimated Change to Long-Term Project Cost and Schedule




Page 22                                                 GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                       Results
                                                                                                    Objective 2

Reported impact on agencies’ project costs and schedules
   • As indicated in figure 3, almost all projects that were fully deployed reported no
     estimated change in the total project cost or completion time. One agency with a fully
     deployed system indicated that costs may increase over the long term without clear
     guidance on federal financial system requirements.
   • For projects that OMB did not approve in their entirety or for which OMB directed a
     change in scope, agencies reported that some of those costs are deferred to future
     efforts.
          o One agency noted that the project revision directed by OMB removed functional
            components, such as payroll accounting and payment systems, from its current
            core implementation and deferred them and their associated costs to future
            implementations.
          o One agency noted that although OMB did not approve certain portions of its
            projects or system components, such as standardization of financial capabilities
            and system upgrades, it is planning to revisit the decision with OMB. The cost of
            those efforts is also being delayed.




Page 23                                               GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                     Results
                                                                                                  Objective 2

Reported impact on agencies’ efforts to improve accounting and reporting
functions
Several agencies noted that they narrowed the scope of their current project plans to
focus on implementing more critical business needs first. They noted that this had the
effect of delaying their efforts to achieve improved accounting and reporting functions. For
example, according to agencies’ survey responses:
   • For one agency, which is also a shared service provider to other agencies, OMB did
     not approve its project to upgrade its accounting software to the current version. The
     agency stated that this action adversely affected its ability to maintain system
     security, maintain vendor support for aging software, upgrade existing software, and
     implement new technology—all factors that will also affect its customers.
   • OMB postponed another agency’s modernization efforts for three of its components.
     The agency stated that this action increases the cost of achieving unified
     modernization across the agency and requires additional investments to maintain
     existing legacy systems for a longer period of time.
   • OMB postponed an agency’s projects to standardize and expand core financial
     capabilities and upgrade core financial systems. The agency reported this action will
     delay the agency’s ability to provide efficiencies and improve functionality.

Page 24                                             GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                      Results
                                                                                                   Objective 2

Reported impact on agencies’ efforts to improve accounting and reporting
functions (continued)
   • Another agency restructured its project to focus on the core financial system
     component as its highest priority business need. The agency commented that while
     postponing the remaining five components of the original project reduced project risk,
     it also delayed deploying functionality, such as account code structure integration.
   • One agency deferred functionality for electronic records management and budget
     formulation to reduce risk and cost to the project. The agency also deferred
     implementation, which the agency reported will result in maintaining legacy systems
     for another year and increase project costs.
   • Another agency’s integration of component segments was postponed as a result of
     OMB’s decision. The agency stated that this action has a strong negative impact on
     its ability to resolve audit findings and puts at risk any progress towards completing
     the project vision of an integrated financial system by at least an additional 2 years.
(See enclosure IV for survey results on the impact of implementing the June 2010
memorandum.)



Page 25                                              GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                       Results
                                                                                                    Objective 2

Agencies reported other observations and challenges related to financial system
projects
   • Agencies whose projects were partially approved or not approved plan to continue to
     request OMB’s approval or look for opportunities in the future for desired
     functionality.
   • Of the remaining challenges reported by agencies, the most prevalent related to the
     following:
          o 12 of 22 agencies reported that standardization of internal processes or data is a
            major or moderate challenge. For example, one agency noted that it faces the
            challenge of simultaneously accommodating the need for management flexibility
            at the mission or office level and the need to collect standardized data for ease
            of aggregation, comparison, and reporting.
          o 9 of 22 agencies reported that funding delays are a major or moderate
            challenge. For example, one agency reported that ongoing delays and
            uncertainties make planning difficult, as the program manager is unable to
            initiate new projects, such as system upgrades or new enhancements, until
            funding status is certain.


Page 26                                               GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                         Results
                                                                                                      Objective 2

Agencies reported other observations and challenges related to financial system
projects (continued)
          o 9 of 22 agencies reported that funding priorities are a major or moderate
            challenge. For example, one agency commented that trying to consider
            competing priorities is a major challenge because of the inflexibility, and
            uncertainty, of changing government mandates. Specifically, the program
            manager is currently determining how to accommodate budget cuts and reduce
            a long list of priority initiatives down to a small number of high-priority projects
            that could be completed within budget in fiscal year 2012.
(See enclosure V for survey results on challenges of implementing OMB guidance.)




Page 27                                                 GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                     Results
                                                                                                  Objective 2

Agencies’ feedback
In their responses to a question included in our survey, many agencies offered feedback
about the process. The following are the relevant suggestions that could be considered in
future review efforts that the agencies provided in their written responses:
   • The review process could be tied to steps in either the agency’s systems
     development life-cycle or enterprise performance life-cycle methodology instead of
     90-day segments. The agency’s steering committee and OMB would review the
     project status prior to moving to the next stage. This solution supports the unique
     aspects of individual financial system implementation projects.
   • Also, consider tailoring the review process to the project’s life-cycle phase because
     fully deployed projects may not need the same level of scrutiny as projects in
     planning or early implementation phases.
   • A workgroup concept could be used as an oversight body. This workgroup would
     spend a dedicated amount of time, potentially on-site, discussing the plans and
     status of projects.




Page 28                                             GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                      Results
                                                                                                   Objective 2

Agencies’ feedback (continued)
   • Consider implementing an ongoing cross-organizational collaboration with customer
     control boards, sharing of agency best practices, and benchmarking experiences of
     agencies in terms of use, satisfaction, functionality, and business change.
   • Possibly develop tools or mechanisms that might aid agencies in efforts to cost
     effectively enforce questionable vendor self-certification claims of meeting federal
     financial system requirements.
   • Streamline governmentwide utilities, such as agency interfaces or maintenance of a
     specific interface, to help reduce agency costs to operate financial systems.
   • Provide standard tools and templates for managing financial management system
     implementations to help in agencies’ financial system projects.




Page 29                                              GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                                              Results
                                                                                                                           Objective 3

OMB plans risk-based follow-up reviews
    • The June 2010 memorandum states that, subsequent to initial project reviews, OMB
      will perform ongoing assessments to determine whether or not an investment should
      continue to receive funding for the next segment. The memorandum also stated that
      the purpose of these ongoing assessments is to inform the appropriations process
      going forward.
    • According to OMB staff, OMB plans to review high-risk projects monthly, moderate-
      risk quarterly, low risk annually and has already started that review process. 9 As of
      October 2011, OMB staff reported that follow-up reviews have occurred as follows:
          o For the five projects at five agencies OMB designated as high risk, OMB has
            held 14 meetings since February 2011.
          o For the seven projects at five agencies OMB designated as moderate risk, OMB
            has held 10 meetings since March 2011.




9
 According to the June 2010 memorandum, projects identified as high risk by OMB should require more frequent assessment to
include review of task orders or activities. Review of projects nearing completion may be abbreviated and will include consideration of
the costs and benefits of implementing the policy (i.e., the three guiding principles) within the project.
Page 30                                                                      GAO-12-184R Status of OMB’s Review of Financial System Projects
                                                                                                    Results
                                                                                                 Objective 3

OMB plans to issue a revised Circular A-127
   • OMB staff stated a revised Circular A-127 would provide additional guidance on the
     issues noted in the June 2010 memorandum.
   • OMB issued a draft of the revised Circular A-127 in October 2010. However, as of
     October 2011, OMB did not provide an estimated date of when a final version of its
     revised Circular A-127 would be issued.




Page 31                                            GAO-12-184R Status of OMB’s Review of Financial System Projects
Enclosure II: Scope and Methodology


To determine the Office of Management and Budget (OMB) approach to develop and implement
OMB Memorandum M-10-26, 1 we conducted interviews with OMB staff, including the Deputy
Controller of the Office of Federal Financial Management to discuss the process OMB followed
to develop the memorandum to review agencies’ financial system modernization projects to
ensure consistency with the memorandum. We obtained and reviewed the Financial Systems
Advisory Board (FSAB) charter to identify its purpose, scope, and responsibilities. In addition,
we met with all six of the FSAB members to discuss their roles, the process used in reviewing
agencies’ financial system projects, and the assessments and recommendations made to OMB,
and to obtain the members’ perspectives on the oversight process. Further, we also obtained
and reviewed the decision memos OMB issued to agencies. 2


To identify the changes agencies made to financial system projects as a result of the June 2010
memorandum, we conducted a survey of the 24 Chief Financial Officer (CFO) Act agencies. We
asked each agency to identify the financial system projects that underwent review by OMB or
FSAB as part of OMB’s oversight and review process. We obtained and reviewed agencies’
revised project plans submitted to OMB for review. Through the use of an e-mailed, self-
administered questionnaire, we collected descriptive information on the financial system
projects selected for review as well as agency perspectives on the process for reviewing
financial system projects. We also collected descriptive information on agencies’ efforts to
implement the June 2010 memorandum; the impact of the memo on project costs, schedule,
and agency efforts to improve accounting and reporting functions; and agencies’ suggestions for
improving OMB’s oversight and review process for financial system projects. We designed and
tested the questionnaire in consultation with GAO survey research methodologists, subject
matter experts at GAO, and selected agency officials. Data collection took place from June 2011
to September 2011. Of the 24 CFO Act agencies surveyed, all agencies responded to the
survey request, and 22 agencies completed questionnaires on 29 projects that had been
reviewed by OMB or FSAB. However, two agencies, with one project each, did not complete the



1
 OMB Memorandum M-10-26, Immediate Review of Financial Systems IT Projects (Washington, D.C., June 28,
2010).
2
 As of October 2011, OMB had issued decision memos to 21 of 24 CFO Act agencies, but we were unable to obtain
the issued decision memo for one of these agencies from the agency or OMB. The reviews of projects at the
remaining 3 agencies were still in process.




Page 32                          GAO-12-184R Status of OMB’s Review of Financial System Projects
survey because they said their financial systems were fully deployed and therefore not subject
to OMB’s review. See enclosure III for a listing of the 31 projects reviewed by OMB or FSAB.


The practical difficulties of conducting any survey may introduce other errors into our findings. In
addition to questionnaire design activities discussed above, to minimize errors of measurement,
question-specific nonresponses, and data processing errors, GAO analysts (1) pretested a draft
questionnaire with officials from two agencies prior to conducting the survey, (2) contacted
respondents to follow up on answers that were missing or required clarification, and (3)
answered questions from respondents to resolve any difficulties they had in responding to the
survey.


To address the objective concerning OMB’s future plans for financial system modernization
projects, we conducted interviews with OMB staff to discuss their plans for oversight of
agencies’ financial system modernization projects. During the meetings, we discussed OMB’s
plans to issue a revised Circular A-127 to serve as guidance on the issues noted in the June
2010 memorandum.


We requested comments on a draft of the briefing slides and related enclosures from the
Director of OMB or his designee. Staff from OMB’s Office of Federal Financial Management
provided oral comments, including technical comments, which we incorporated as appropriate.


We conducted our work from January 2011 through February 2012 in accordance with all
sections of GAO’s Quality Assurance Framework that are relevant to our objectives. The
framework requires that we plan and perform the engagement to obtain sufficient and
appropriate evidence to meet our stated objectives and to discuss any limitations in our work.
We believe that the information and data obtained, and the analysis conducted, provide a
reasonable basis for any findings and conclusions.




Page 33                       GAO-12-184R Status of OMB’s Review of Financial System Projects
Enclosure III: Financial System Projects Reviewed by OMB/FSAB

Enclosure III summarizes the results of responses from CFO Act agencies related to their 31
financial system projects, including the reported deployment phase of projects, estimated
project costs, OMB decisions after reviewing projects, and the assigned risk level of projects.
The reported life-cycle phases of agencies’ financial system projects are categorized as follows:
   •      Planning and pre-deployment—Agency project is in the planning, solicitation, or pre-
          deployment phase.
   •      Initial or phased deployment—Agency project is in process of being deployed, including
          initial deployment, subsequent and phased deployments, or in final deployment.
   •      Fully deployed—Agency project is in operations and maintenance and fully deployed.

   •      Other—mixed cycle—Agency has multiple sub-projects or components that are in
          different phases of development. For example, projects can be in planning, solicitation,
          pre-deployment and fully deployed life-cycle phases.




Page 34                         GAO-12-184R Status of OMB’s Review of Financial System Projects
Figure 4: Financial System Projects Reviewed




Page 35                 GAO-12-184R Status of OMB’s Review of Financial System Projects
Page 36   GAO-12-184R Status of OMB’s Review of Financial System Projects
Enclosure IV: Reported Impact of Implementing OMB Guidance


Enclosure IV summarizes agencies’ responses to the survey question regarding the impact of
the June 2010 memorandum and OMB’s oversight and review process on their financial system
projects. As indicated below, most agencies reported neither a negative or positive impact on
their efforts to perform a variety of activities for their projects.


Figure 5: Survey Results on Impact




Page 37                          GAO-12-184R Status of OMB’s Review of Financial System Projects
Enclosure V: Reported Challenges of Implementing OMB Guidance


Enclosure V summarizes agencies’ responses to the survey question regarding challenges
related to financial system projects after issuance of the June 2010 memorandum. As shown
below, agencies reported that standardization of internal processes or data, funding delays, and
funding priorities as the most prevalent major and moderate challenges.


Figure 6: Survey Results on Challenges




Page 38                      GAO-12-184R Status of OMB’s Review of Financial System Projects
Enclosure VI: GAO Contacts and Staff Acknowledgments


GAO Contacts

Paula M. Rascona, (202) 512-9816 or rasconap@gao.gov

Nabajyoti (Naba) Barkakati, (202) 512-2700 or barkakatin@gao.gov




Staff Acknowledgments

In addition to the contacts named above, Chris Martin, Senior-Level Technologist;
Michael LaForge, Assistant Director; Jehan Abdel-Gawad; Francine DelVecchio; James
M. Healy; Wilfred Holloway; Jason Kelly; Yvonne Moss; Carl Ramirez; Jerome Sandau;
Pamela Valentine; and Carolyn Voltz made key contributions to this report.




(195160)



Page 39                  GAO-12-184R Status of OMB’s Review of Financial System Projects
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