The Financial Systems Scramble

n NASA's accounting offices, "gap analysis" has been the name of the game this year, as managers and contractors investigate the degree to which the agency's new financial software will do what they want it to do.

In September, the space agency awarded a $186 million contract to KPMG Peat Marwick LLP, a Big Six accounting firm, to overhaul NASA's financial management systems. The Integrated Financial Management System (IFMS) will be based on
KPMG's Performance Series, a set of software modules for accounting, budgeting, procurement and related tasks.

However, no off-the-shelf software perfectly matches an agency's needs. NASA managers have reengineered their accounting processes, and now they're figuring out how the KPMG software will fit. Where mismatches exist, they will have to modify either software or processes to get the system up and running. The agency's preference is for changing its processes and minimizing software modifications, says Arnold G. Holz, NASA's chief financial officer. But he acknowledges that some software changes can't be avoided.

There is no time to waste. By October, the new system is supposed to be operational at Marshall Space Flight Center in Alabama, which will house the central data repository for the agencywide system, and at Dryden Flight Research Center in California. The last of the agency's 11 centers will get IFMS by July 1, 1999. That's a remarkably fast schedule for a system that will have at least 20,000 users and perhaps as many as 50,000. Every NASA manager will be affected, says David Howell, associate CFO and IFMS project director.

The biggest such federal project to date, NASA's system reflects a number of government trends in financial management:

• For the first time, agency managers will get a comprehensive and timely picture of their finances. Until now, the NASA centers have operated their own homegrown financial systems, and pulling the data together has been difficult.
• IFMS is based on commercial off-the-shelf (COTS) software for a client-server architecture, and the agency has committed to minimizing modifications.
• An executive information system will give top NASA administrators up-to-date information about the agency's operations.
• The contract award did not mark the beginning of the modernization. Process reengineering and transition planning had begun 30 months earlier. The agency is using a team approach to the extremely complex changeover.
• IFMS will implement full cost budgeting and full cost accounting, bringing the agency into compliance with mandates from the White House and Congress.

A Homemade Quilt

After all, it was back in the first Reagan administration that the White House called for fundamental improvements in federal financial systems. Office of Management and Budget officials described a patchwork of incompatible computer systems supporting inconsistent processes. Despite substantial progress since then, many of the original criticisms still apply.

Systems are better than they were a decade ago, but expectations and needs have outpaced the improvements. OMB's 1997 "Federal Financial Management Status Report and Five-Year Plan" says agencies are installing 110 new systems. Still, two-thirds of the 811 systems now in operation need to be replaced or significantly upgraded, agency officials told OMB. Fewer than half fully implemented the U.S. Government Standard General Ledger, the basic set of data and transaction definitions at the heart of the push for uniformity in federal accounting. And a year ago, fewer than half the systems were ready for the year 2000.

Technical deficiencies are only part of the picture. Old systems are inflexible and difficult to modify. Many agencies are reorganizing, and their management systems have not kept up. One common result: Agencies must devote staff time to correcting erroneous reports and reconciling conflicts in the numbers.

At NASA, for example, equipment purchases today must be recorded in at least three different systems, and sometimes as many as seven, for procuring and then managing the new asset. Once the data is entered in the different systems, it has to be reconciled across them. A single entry error can suck up hours of staff time. With IFMS, the purchase will be entered once, and the data will be used by all the appropriate modules.

Old systems' batch processing orientation slows production of reports. Program managers no longer are content to wait a couple of weeks to find out how much they've obligated this quarter or what their payroll expenses were for the last month. Modern systems like IFMS eliminate many outdated reports by making the data available on a personal computer screen whenever and wherever it's needed.

In today's fast-paced management climate, such timely reports are in demand, and the technology now can support them. In September, American Management Systems Inc., whose mainframe-based Federal Financial System is perhaps the most widely used financial software in the federal government, released Momentum Financials, a client-server system with expanded capabilities and a more flexible architecture. Other software companies serving this market are pushing their own client-server offerings. With contemporary systems at their disposal, "people really have the ability to manage in a real-time environment," says Sherry Amos, a senior member of PeopleSoft Inc.'s federal unit.

The push for commercial off-the-shelf (COTS) products seems to be gaining momentum. For years, the Defense Department has been regarded as the last bastion of custom-developed financial software, but even DoD is changing, says Deputy Chief Financial Officer Nelson Toye. "There's a lot of advantage to using COTS, and we've recognized that." One example: The Pentagon has installed four COTS packages to manage its working capital funds.

While agencies are attracted to contemporary technology, the push to modernize financial systems comes from a growing set of laws, regulations and policies. The 1996 Federal Financial Management Improvement Act calls for agencies that can't comply with official standards to develop remediation plans this year. The standards bar keeps moving up, as the Joint Financial Management Improvement Program (a Treasury Department-sponsored interagency committee) expands its standard accounting requirements and the Standard General Ledger model is fleshed out.

The wonder is that more agencies aren't replacing or substantially renovating their financial systems. In fiscal 1997, only five agencies took the first step toward acquiring new systems by releasing a letter of interest (LOI). "The number of LOIs isn't a good measure of how many agencies are looking," says Wayne Bobby, director of government financial solutions for Oracle Corp.'s government division. He predicts more activity this year and thereafter.

By the Book

Executive branch agencies must buy from one of the nine vendors on the Financial Management Systems Software (FMSS) schedule. Those companies' products have been tested for minimal conformance with federal accounting standards. Treasury's Financial Management Service has been in charge of that testing. On the acquisition end, the General Services Administration negotiates terms and conditions with suppliers and coordinates ordering.

Dissatisfaction with the FMSS process, on the part of both vendors and agencies, has led an interagency committee under the auspices of the Chief Financial Officers Council to propose major changes. Many of the changes will be reflected in a draft solicitation for new FMSS contracts for fiscal 1999, which was expected at press time.

As part of the proposed changes, JFMIP is supposed to establish a program management office that would take over the testing and certification of software. The office would improve and document test standards and procedures. Relying largely on volunteer effort, the testing has been criticized as ad hoc. Both agencies and vendors have been dissatisfied with the information they can get about the testing process and results. Scheduling tests also has been difficult at times.

R. Schuyler Lesher, deputy CFO at the Interior Department and chairman of the CFO Council's financial systems committee, thinks better communication between vendors and agencies is one key to improvement. More clarity in testing may encourage vendors to submit more products. Agencies have complained that the most up-to-date software isn't always found on the schedule. And the changes may allow agencies to rely more heavily on the testing and certification process.

Waiting in the Wings

While these changes are being implemented, vendors not already on the mandatory FMSS schedule have had their entry into the federal market delayed. With some fanfare, two of the world's best-known enterprise software companies, PeopleSoft Inc. and SAP AG, announced their moves into the federal marketplace last year, but neither is likely to be on the schedule this fiscal year. Entry into the federal marketplace is no small matter for vendors, because they must modify their products to meet minimum federal standards and undergo tests, in addition to their marketing efforts.

While waiting for the next opportunity to get on the FMSS schedule-a process that begins with release of the draft solicitation-PeopleSoft has been selling its even better-known human resources applications to federal agencies. In December, the Treasury Department became the 11th federal agency in 1997 to contract for PeopleSoft's human resources software. Company officials have made known their frustration with the current FMSS situation. "It is a tremendous barrier to entry into the federal marketplace," Amos says.

Meanwhile, SAP, a German company, formed SAP America Public Sector Inc., rented high-profile offices in the new Ronald Reagan Federal Building on Pennsylvania Avenue, and began selling its comprehensive management package to higher education and state and local governments.

SAP's entry raised a recurring question about the degree to which the off-the-shelf software approach is meaningful. Although SAP's R/3 product line is highly regarded by the Fortune 500, complaints about the time and effort to install it are legion. SAP has responded by rolling out a less complex version of the product that can be installed in six to nine months. Nonetheless, the SAP methodology requires customers to reexamine processes and reengineer in many cases. Because customers don't plan adequately for this aspect of the project, cost overruns and delays reportedly are common with SAP implementations.

The same kinds of issues are, in fact, likely to arise with any comprehensive financial software package. That's one reason both Congress and OMB require agencies to reengineer their processes and adopt commercial practices where possible, before installing new software. But such mandates don't work miracles. In recent years, according to GSA officials, more than 90 percent of FMSS spending has been for services rather than for the software itself.

Interior's Lesher, a former OMB official, says he regards the distinction between services and software as somewhat arbitrary. The true issue is the total cost of a modernization, he maintains. But in the eyes of some, the amount of customization can transform packaged software into one-of-a-kind applications.

"Agencies are asking for the benefits of COTS packages," says Shelby Blythe, a senior consultant with Keane Federal Systems of Rockville, Md., one of the FMSS vendors, "but they're not willing to give up the benefits of customization." Other vendors agree that in most cases, when it comes to choosing between changing the agency and its processes or changing the software, the software is what usually gets modified.

But then, when circumstances change or the vendor wants to improve the product, "it's very difficult to implement standard changes across systems" that have been heavily modified, Blythe says. He hopes forthcoming schedule modifications will encourage more use of a true COTS strategy.

John Grainey, a former federal finance manager who now heads SAP's Washington office, suggests that the COTS strategy and standardization policies were ahead of their time. When they first were articulated, the products and the underlying technology had not matured sufficiently. Now the time is ripe, he says. Agencies that modernize their financial systems, Grainey predicts, will find that "the benefit to the organization goes way beyond the accounting improvements."

As Lesher sees it, agencies don't have much choice. "We've already cut the people in a lot of places," he says, "so we have to continue to invest in these systems."