Last Friday, July 19th, Treasury’s Office of Financial Innovation and Transformation (FIT) held a teleconference discussing the financial management shared services initiative, and went over some ground that should prove very interesting to industry – particularly COTS vendors looking to sell financial management solutions.
The current federal financial management landscape makes for some surprising reading. According to FIT estimates, the total financial management spend across the government is somewhere in the neighborhood of $8.5 billion, most of which goes towards maintaining stovepiped legacy systems that were custom-designed for each agency. Not surprisingly, this means that past updates and modernizations (when they happen at all) have been both too expensive and suffered from schedule overruns. In fact, the situation is so dire that many federal agencies are unable to provide financial data for government-wide efforts, and have generally had difficulty making required enhancements to their legacy systems.
So what is the solution? According to a memo released by OMB in March, the days of custom-built core financial systems are over. From now on, any agency looking to modernize its financial management systems will be required to either use a shared service provider (SSP), or provide detailed justification explaining why they can’t. Moreover, according to FIT, current guidance indicates that federal SSPs will get preferential treatment in this process – an agency must first determine that every available federal SSP option does not meet their needs before reaching out to commercial SSPs. Expect to see agencies who operated Financial Management LOB shared service centers – DOI, GSA, and Treasury, among others – start to take on bigger roles as designated financial management SSPs moving forward.
What does this mean for industry? To put it bluntly, no agency currently has the technological capacity to provide the level of service being discussed. That means real sales opportunities for any COTS vendor with core financial management tools – technology to support accounts payable, accounts receivable, funds management, and reporting capabilities. Some SSPs will also be offering what FIT is calling “mixed services,” like grants management, procurement, and HR management. We’re still early on in this process, with FIT due to designate federal SSPs by spring of 2014, but it’s never too early to start having conversations with some of the groups that figure to be players in this space. We’ll be staying on top of this, and we think you should be too.