White House Eyes Financial Systems Overhauls

Characterizing federal financial system modernizations as too costly, complex, and poorly performing, the White House plans to "immediately halt" new procurements for financial systems and become significantly more directly involved in the process, according to a draft memo obtained by InformationWeek.

"Financial systems modernization projects have consistently underperformed in terms of cost, schedule, and performance," Office of Management and Budget director Peter Orszag writes in the draft memo. "This memorandum initiates a re-examination of those investments in favor of shorter-term, lower-cost, and easier-to-manage solutions."

While an Office of Management and Budget spokesperson declined last week to comment on the draft memo, in response to a question after a speech on Tuesday, OMB director Peter Orszag told InformationWeek that the White House would "have more to say about financial systems in coming weeks and months."

The memo is part of a broader administration push to make IT spending in government more efficient and effective. That push is exemplified by OMB's reliance on the federal IT Dashboard to track IT projects and its new TechStat sessions to work closely with agencies on underperforming IT projects.

The push was highlighted Tuesday as OMB released another memo instructing agencies to await further guidance on IT project management and formal reviews of at-risk IT projects. The draft memo on financial systems modernization appears to be part of that guidance, as the memo says it is part of a larger "IT project management reform effort" that would be disclosed in a memo signed by Orszag and White House chief of staff Rahm Emanuel.

Part of the financial systems modernization draft memo requires agencies to cut projects into shorter segments. Agencies would be required to split project segments and task orders into durations of less than 90 days, with the overall development of projects not exceeding 24 months. "This approach simplifies planning, development, project management and oversight, and training," the memo says, adding that segmented development also forces agencies to prioritize key financial functions. Funding will also be apportioned on a quarterly basis.

"The old model, to build a large financial system from scratch, is broken, and you're seeing in this memo that that model is broken," says David Lucas, chief strategy officer for federal financial systems company GCE Federal. "There are many examples where folks have failed in trying to build a system that way."

The memo would also subject agency projects to a heavy review process. The most immediate effect would be to put a temporary stop to any pre-acquisition financial system modernization effort with $10 million or more in planned spending and any task orders worth over $500,000 pending OMB review. Moving forward, agencies will have to present revised project plans for all such projects, which will be reviewed by OMB. OMB will also assess whether investments should receive funding for subsequent segments.

The memo requires project plans to detail the oversight of senior agency officials for the project. "To establish senior-level engagement in program sponsorship is one of the biggest opportunities for improvement," says Tim Young, senior manager with Deloitte's federal practice and a former deputy administrator of e-government at OMB during the Bush administration, adding that the increased involvement of OMB can only add to the benefits. "Transparency leads to clarity leads to accountability leads to results."

In addition, the White House is pushing agencies to adopt shared services and tasking the Department of Treasury's new Office of Financial Innovation and Transformation with piloting shared services for transactions processing. In so doing, however, the White House notes failures of previous such efforts.

The memo also sets up a new mechanism for standards-setting and software certification to fill a void left by the dissolution of the Financial Systems Integration Office and not yet filled by Treasury's Office of Financial Innovation and Transformation. The memo says that OMB will soon update financial system requirements, initiate a "performance-based approach to assessing compliance," and develop a self-certification scheme for financial systems software and hardware.

Despite its scope, the forthcoming White House memo likely won't be a panacea. Some of the problems with financial systems overhauls are cultural, and those can't be overcome with a simple stroke of the pen. "The challenge is that efforts often are transformational in nature," says Tab Warlitner, principal in Deloittes federal practice. "There are silos that cause cultural problems in any financial system modernization because they often cause consolidation of control and power, and that creates resistance."

Other problems deal with the age and complexity of existing systems. "These systems don't exist in a vacuum," GCE's Lucas says. "They all have to integrate with legacy systems. You can do every other thing right and have the integration still fail, and I'd like to see more recognition of that."

Lucas would like to see more teeth around standards requirements. As it stands now, the draft memo says that the standards process will place an emphasis on flexibility. "I'd like to see a requirement that if agencies deviate from federal standards, they should have to give a business case for doing so," Lucas says.