OMB's hold on financial systems comes with a price

Laurance Alvarado and John Cox are senior directors at Alvarez and Marsal’s Public Sector Services practice in Washington.

Although federal agencies spent more than $875 million in 2010 to improve their financial management systems, recent reviews by the Office of Management and Budget, the Government Accountability Office and agency inspectors general reveal that many systems continue to underperform. Several projects have been restructured or even canceled.

However, OMB has created a difficult situation for agencies by mandating a pause for all new financial system projects. That threatens to stall the assessment process, drain resources and diminish momentum for modernization efforts.

What does that mean for chief financial officers? First, new financial systems are at a standstill for the foreseeable future. Such complex projects are difficult to manage in the best of times, and with few projects scheduled to start, many questions are unanswered. For example, will those who provide skilled implementation assistance be sent home until approval is received? What will be the effect on existing projects while new guidelines are added? Will project funding be at risk because of the delays? In short, the logjam will slow progress in dealing with material weaknesses and delay business process improvements.

Second, the mandate will cause functionality chunking as agencies break development efforts into smaller pieces. That approach adds complexity and time to the project management and procurement processes. The apportionment and procurement process is open as many as four times a year — which is too many times, in our opinion — and costs agencies resources, energy and momentum. A better approach would be to focus on good project management.

Clearly, strong guiding principles are lacking. Although it will take time for a new review process to establish consistent, transparent rules for agencies, new principles should include an increased focus on critical business needs. It is also important for the oversight process to be transparent. Those actions will lead to establishing solid best practices and give agencies a clear path to follow.

What can CFOs do now? Although it’s imperative to respond to OMB’s assessment criteria by adjusting budget and program justifications, funding profiles and resources, CFOs cannot lose sight of the fact that the core function of agency financial management is to optimize business processes and project management to meet strategic goals and deal with the fundamental integrity of financial systems.

More than ever, CFOs should view their roles in the context of optimization, which will allow their agencies to address critical business process and programmatic issues. Here are three steps that CFOs must take.

• Set and keep strategic goals as a top priority. Regardless of the status of a project, an agency's strategic goals must hold. Through each increment of funding and functionality, CFOs must demonstrate projects' alignment with the ability to meet those goals.
• Capitalize on usable functionality. Much of the functionality of financial systems might not be realized until later years. That requires managers to conduct an analysis of usable functionality vis-à-vis the accomplishment of strategic goals.
• Deal with process improvements. The promise of modernization is to resolve material weaknesses in concert with instituting a new business model, but many projects fall short on both counts. CFOs must work on issues related to fundamental business processes before attempting anything else. After you have addressed them, you will have better financial management and better controls, and you’ll better serve your mission.

The CFO community needs to make use of knowledge sharing to fix weaknesses beyond large-scale implementations. That will ensure that taxpayer dollars are wisely spent and agencies’ missions are achieved, even in the face of uncertainty.