When the White House released a June 28 memo (.pdf) telling agencies not to initiate new development spending on federal financial management systems worth more than $20 million until the Office of Management and Budget has reviewed spending plans, it was just the latest sign that changes to the way the government manages financial IT systems are underway.

FierceGovernmentIT caught up with Mark Forman, former head of the Office of Management and Budget office of e-government and information technology--now a partner at KPMG--and Jeff Steinhoff, former Government Accountability Office assistant comptroller general for accounting and information management--also at KPMG, as executive director of the firm's government institute--for their reactions to the memo. 

FGIT: So, it appears the federal financial system projects will have to become smaller in scope, ambition, length and cost.

Forman: We think there's bifurcation going on in the technology trend that's really important here. We went through the mainframe era, which was obviously about automating the big processes--databases, those types of things. The client-server era is where largely a lot of the ERP and other enterprise applications grew up, but they grew up largely within silos. That led to a lot of re-engineering, but within silos. In parallel with the rise of a lot of user interface work and the Internet, there was a rising trend in knowledge management. And so we've gone through this phase where we've automated business processes, some of which are transactional and should be automated.

The other trend, though, is the opposite of automation. It's more "how do you get the data to the people who need to use their judgment to make decisions?" Those processes have not been automated well. You can't really automate those judgment-based processes.

We're in a period where there are these big technology disruptions, and I think part of what has to happen here is that OMB or agency leadership has to understand what's causing these projects to fail. Is it just bad project management? I'm not saying that the government is great at project management--you've got a couple thousands of these major transformation projects in IT across the agencies, and there may not be that many project managers. It's good to take a look at do we have the skills to manage our projects.

But the real issue here is that we've tried to automate processes that are knowledge processes and we haven't figured out which technology disruption we take advantage of. I think that's one thing that's got to be flushed out.

The other thing that's important is that they're approaching these business transformations as if they were IT projects, and bundled them all together.

FGIT: They, meaning agencies?

Forman: The [Obama] administration--the memos that came out. IT projects are things like moving to a different generation of email; moving to Google Mail instead of Outlook or Lotus Notes. IT projects are like data center consolidation, that's an IT project. What we're talking about here are business transformation projects, and that's more than IT project management. That's how are you managing change. That's what needs to be the focus here, how do you manage the business transformation.

You can't deal with IT projects and business transformation projects in the same way. The administration is going to have to figure out what's the focus of the business transformation? If they don't move down the end of end-to-end process integration, that's really bucking the world that the commercial world has gone to, and all the software support with Sarbanes-Oxley implementation.

Companies got to Sarbanes-Oxley compliance with end-to-end business process integration. The government can't be successful without saying what is the business process integration framework for automated processes and how we're going to use these tools for knowledge management--I think there's more to come out of OMB on this.

Steinhoff: OMB is trying to find a cure for problems that have plagued many agencies. A lot of the business processes are operated in a siloed environment. When you look at financial reporting and financial management, you have to bring together information from a lot of different disciplines, a lot of different systems. That's been a real, real challenge. We've tried to move toward these grander solutions, major ERP systems, and they have been costly. The systems have taken a long time to field, if ever. Agencies haven't gotten the result they're really looking for. OMB is trying to better control what is done and how this money is invested. This is going to be a tremendous challenge, I certainly understand why OMB is making change, and I think that no one would debate the fact that there have been problems in delivering financial management systems in the past.

There's going to have to be a lot of work done. I think the guidance we're seeing now is just the first as more specificity will follow. OMB has got to ensure that it has the capacity itself to provide the leadership and guidance, as this is a big undertaking. Certainly something was needed, and study after study by GAO and others were showing that the status quo was not fully working. I think part of it is the complexity of government, and the way it is structured.

FGIT: The memo seems to say that federal IT modernizations attempted to do a large business transformation along with implementation. Do you think this new way will allow for transformation?

Forman: You have a growing gap between the enterprise applications that basically require end-to-end processing integration--and that's the way commercial business is going--and the potential of the stop of that integration now because it's too different for agencies to do. As Jeff indicated, I think there's a missing set of constructs here. You can't just shut down transformation projects because they don't work and leave the government on 1990s-era financial systems. Somebody has got to come up with the better vision, in the IT arena what we call the "to be architecture."

What we're seeing is that whole processes are moving to the cloud, where you get tremendous integration of the process and the reduction of transaction costs, but you've got to adopt a standardized approach. Standardized data, standardized transaction processes. My theory--it's not KPMG's--is that the world is moving toward commoditizing these basic functions like procure to pay that agencies seem to have such a tough time grappling with. There's nothing really unique about those basic functions--you're paying a check. It just comes down to "Do you have the data to validate it?"

That's a large part of the future--don't build and customize what essentially are commoditized business processes. Just adopt it.

Steinhoff: OMB is not really calling for necessarily a total change in what the ultimate goal may be, but a different way of managing this. They're saying that we just have too many expensive cars on the side of the road that were designed with 24 cylinders, and they just didn't run.

We need to prioritize, focus on the most important things first. We need to agree on the critical business needs. I think OMB will be pushing for much more standardization, especially when there's no reason for any difference. They'll be looking for different project oversight, where we don't pull the plug once the smoke is coming out--we stop and we revisit under performing projects much earlier. We might have a greater design, but break it into smaller deliverables, things that agencies have a better chance of controlling.

As I mentioned earlier, this will require a capacity at OMB to be able to take this critical look. I think it makes sense, but it's not going to be easy, no matter what one does. But they just want to avoid the type of results that they properly characterize here. They're not seeing the ROI. There's a lot of details here that will have to be worked out. But I think when you get to the end, you're going to see much more focus on standards, standardized approaches, and on shared services.

There's going to be, I think, greater recognition that in order to deal with a financial system, you've also got to have the ear and the eye of the people who are managing the other related systems. The vast majority of financial information needed to prepare a financial report does not come from an accounting system. It oftentimes comes from a personnel, acquisition, or logistics system, and we need to think of this end-to-end in a holistic approach. We need to break down the various stovepipes, and find a more rational way to invest, because these things take a long time. You don't really know if you've got a result until the thing is eventually turned on. OMB, GAO and others have found over and over again, that all too often of the results have not been good and the projects have been costly.

I think OMB is taking a bold move here, and it's going to require a tremendous amount of leadership and focus and a capacity to get down to those things that are critical and important. The devil is generally in the details--what exactly are they going to do and what exactly are agencies going to do that's different than what they've been doing heretofore? People have always wanted to do the right thing, and have always wanted to get a result. The current situation is certainly not for lack of a lot of effort, and a lot of attention to it.

FGIT: The memo seems to also shut down the Financial Line of Business.

Forman: It was very difficult to get agencies onto the shared services, and the shared service centers weren't set up in a manner to scale. That's a key insight. Part of what OMB is doing, and it's the right thing, is to figure out what's the better mousetrap.

Steinhoff: It's very symbolic and very important that a related OMB memo (.pdf) on IT project management was signed by the White House chief of staff as well as the Director of OMB. What they're saying is that we're going to have a more activist OMB. We're going to make sure we get the right decision, because we've talked about this for a long time. Some of it is cultural change.

FGIT: What needs to happen for agencies to adopt common data standards, common transaction processes in the cloud, either from the top down, or the bottom up, or both?

Forman: One of the biggest things is that they've got to realize the cost versus value proposition of holding on to literally hundreds of years old transaction processes. Sometimes agencies have business or transactional processes that are prescribed by Congress. Having been on staff in the Senate Governmental Affairs committee, there's tremendous interest in Congress in fixing these management laws, given the data, but agencies may not know that they have that opportunity That's one of the reason that the Clinger-Cohen law and the OMB 300 process allows an agency to say we need some changes, some flexibility in the legal, regulatory structure. That may be one thing, that there may be some changes here and there that are needed in the legal and regulatory structure.

The other thing is that we've got to move beyond the client-server era. Most of the systems that were set up with a segmented data architecture and separate ways of processing transactions were built in this last era, the client server era. They're getting disrupted by the movement toward end-to-end integrated processes. The process integration trend is going to occur one way or another.

Where financial offices are getting hit hardest is not really in IT projects. It's all the burdensome reconciliation processes--the errors that get dumped out of these systems because of different data architectures, or data standards, transactions that don't match. A lot of the agency financial offices are dying under the weight of the reconciliation burden. And that's the real issue that's got to get addressed.

Steinhoff: Generally folks are supportive of standardization, but it is not easy to change given the pace of government business. I'll borrow a line from former Deputy Secretary and Comptroller of Defense John Hamre, [who said] "It's like changing the wheel on a train going 100 miles an hour." Agencies have got to conduct business every day.  Their processes are set up to conduct business in a certain way, to process transactions in a certain way. Change becomes difficult, not solely because people are afraid to change, or opposed to change. As Mark was point out before, a lot of them feel inundated with what they've got to do.

This is difficult stuff, because you only have a finite amount of resources, and you've got to get the day-to-day business completed. I think what OMB is saying is that we've got to step back, because some of these major system efforts that we've got into in the past, in good faith, just aren't getting it done. A lot of these agencies have invested a lot of money and are still facing challenges.

I'll point to one financial process that is a candidate to be a joint process. A number of federal entities provide loans. A citizen could go to a common portal to apply for a federal loan. There could be standard information that every borrower would need to enter.. And then if they wanted an SBA loan versus a HUD loan, they would check on "SBA," and would answer certain specialized questions. There would be a way for the government then to store data in case that person came back again for another loan. It would provide them an ability to look across agencies and to administer the servicing of loans. SBA would still issue the program regulations but the ministerial end would be standardized and managed as a service. Now, this is easier said than done, but these are proposals that have their genesis back several decades. Perhaps we should have stepped back then, and said "Gee, does it make sense for 10 or 20 different entities to develop lending systems?"

Forman: The reality is that you can't buy a system that just does finance. You can't just buy a core accounting system. They don't sell them, they don't make them. Because of Sarbanes-Oxley, you buy end-to-end integrated platforms for running your business. The notion that an agency is going to chunk it off and just buy a piece of the system and expect it to work is not what I think they intended by the memo, because you can't buy that. Now, you can buy processes in the cloud that chunk off certain types of transactions because they're highly automated, non-customizable, standardizable. Or, you can buy the end-to-end ERP environment, but the government isn't organized to have the procurement shop work with the finance shop and the hire to retire folks all work together. That's the change management, business transformation require that needs a lot of leadership.

There really is no such thing in the commercial world as just a core accounting system. It only exists within the government.

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