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Defense Business Transformation Lacks Clear Priorities

The Defense Department (DOD) spends billions of dollars annually on business systems. Since 2005, investments aiming to transform the way the DOD does business have been called out on a high risk list for government efforts. Despite making some improvements in recent years, the DOD’s business modernization initiatives continue on a precarious path. 

Every two years, the Government Accountability Office (GAO) identifies government programs that are more vulnerable to fraud, waste, abuse, and mismanagement or need changes to address major challenges. Recently, the GAO released its updated list of these programs. Not surprisingly, the GAO’s High Risk List for 2015 includes several efforts related to DOD business transformation (e.g. DOD Approach to Business Transformation, DOD Business Systems Modernization, DOD Financial Management). 

Since concerns about defense business transformation arose, the DOD has established management responsibilities and issued an updated strategy for business transformation. Despite these steps, a number of elements contribute to the DOD’s business transformation appearing to be on uncertain footing. Over the past several years, turnover has been high in the Chief Management Officer (CMO) and Deputy Chief Management Office (DCMO) as well as within the Office of the DCMO. This personnel issue is compounded by the fact that no performance management practices are in place. In the absence of leading performance management practices, DOD’s CMO and DCMO have neglected to communicate priorities for its business goals. Further, the focus of leadership has been on reviewing modernization efforts rather than monitoring the overall progress of the defense business functions. 

Over the last year, Defense Business Council meetings have occurred with more consistency and have increasingly emphasized the performance of DOD’s business functions. However, no plans are currently in place to correct the issues that have been hindering business transformation progress. (The lack of corrective actions plans are particularly significant in the eyes of the government watchdog organization. These plans would meet one of the five criteria for this area to be removed from GAO’s High-Risk List.) 

Ultimately, until the DOD addresses numerous issues underlying its approach, challenges will continue to arise around its business transformation efforts. These weaknesses include the continued use of outdated processes and systems for key business functions, like financial management and logistics. For more insight on DOD business systems modernization and efforts across the government, check out Deltek’s recent Federal Industry Analysis report Federal Enterprise Business Systems, 2015.


Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWinIQ. Follow me on twitter @FIAGovWin.


Shared Services to Ease DATA Act Implementation

Dick Gregg, Fiscal Assistant Secretary of The Treasury and the executive assigned to implementing the DATA Act, expressed concern about the quick three year implementation timeline for the DATA Act at a recent Federal Financial Management Conference.  However, he believes that moving agencies to shared financial management services is a “force multiplier.”

Gregg believes outsourcing financial management functions to one of the four recently approved federal financial management shared service providers could streamline the compliance process.  “The sooner we can move more agencies into shared services, the easier it’s going to be to implement the DATA Act,” he stated.

The Digital Accountability and Transparency Act creates standards for agency reporting of financial data and makes it publically available.  The Act specifies a three year implementation timeline to begin with Treasury’s establishment of a data analytics center modelled after the Recovery Accountability and Transparency Board’s Recovery Operations Center for the Stimulus.  The center will work with OMB to establish agency financial reporting standards.  OMB will also set up a two-year pilot program for use by contractors and grantees.  Gregg wants to move quickly with demonstration programs to see what will work. 

The Act provides no funding for implementation.  This may explain the less than enthusiastic reception from some agency financial managers.  They fear reporting may cast more of a burden on already strained resources.  According to Mary Peterman, president of the Association of Government Accountants, “…generally, they all believe in the essence [of the Act], except that whether the legislating transparency is a value proposition for the citizenry is somewhat the question.”    

Ultimately, the new financial reporting will be available via which is now managed by Treasury.  After implementation, the federal spending data available via the site will provide a deeper view into federal spending.  Not only will the additional data provide transparency to the public, it should help agency executives gain more insight into their operations, leading to improvements in efficiency and effectiveness. 


Four Shared Service Providers Announced for Federal Financial Management

One of the administration’s initiatives to streamline operations has been to implement shared services for core administrative functions.  On May 2nd, OMB in conjunction with the Department of Treasury, announced the designation of USDA, Treasury, Interior and Transportation as approved shared service providers for financial management across the federal government.

In March of 2013, the administration issued a memo, Improving Financial Systems through Shared Services, to promote the use of shared services for federal financial management across agencies.  The designation of the four agencies moves this initiative forward.

Shifting financial services management to other providers will allow agencies to focus more on mission-based programs.  Agencies will also gain efficiencies and economies of scale for system implementations, maintenance, and enhancements while reducing costs.

The four providers were required to undergo an extensive application process and evaluation.  Other service providers may be designated in the future as agencies migrate to these four providers and demand increases. 

USDA replaces GSA as an approved shared service provider for financial management services.   USDA offers SAP as their back-end software, as opposed to Oracle which is offered by the other three providers.   

According to Federal News Radio, GSA getting out of the financial management business is “no real surprise.”  They announced last summer that they would be shedding their human resources management offerings.  GSA offered CGI’s Momentum software for financial management.

USDA’s financial solution is based on a commercial, off-the-shelf resource planning product which is web-based and provides funds management, financial reporting, and general accounting capabilities.  The solution has been deployed in 28 of USDA’s administrative organizations. 

The designation of these providers is just one step in the process to implementing financial management shared services across the federal government.  Treasury's Office of Financial Innovation and Transformation (OFIT) will be working with the providers to address any of their needs and concerns, and resolve any identified issues.


Spending Trends: DoD Enterprise Resource Planning Systems

The Department of Defense spends almost $7 billion per year to maintain and operate its nearly 3,000 business systems.  With an annual IT budget of more than $35 billion, this spending on business systems accounts for approximately 20% of the DoD’s IT budget per year.  That’s a lot of money and in a time of increasing fiscal tightness, the DoD has been working for years to implement large-scale Enterprise Resource Planning (ERP) systems that will enable the department to decrease spending on its business systems and finally achieve a legislatively-mandated clean audit by FY 2017.  Because the size of the DoD’s investment in ERPs is so large and the work has gone on for so long, this week’s post will take a look at annual spending on many of the largest ERPs being implemented.

The ERPs Examined

The table below contains a list of the 16 DoD ERPs for which spending data was compiled.  This is not a complete list of the ERPs being implemented across the department, but it does include most of the largest systems.  Multiple instances of these systems being implemented in the various military departments are also included.

Before going further, a comment must be made about the limitations to the government provided data.  The Office of Management and Budget (OMB) requires that every fiscal year departments must submit what is called a Capital Asset Plan and Business Case Summary for every one of its major IT investments.  These documents, referred to as Exhibit 300s, contain the numbers of contracts awarded for work related to the investment.  It is these contract numbers that have been used for the spending tables below.  Unfortunately, spending data is not available for each of the contracts listed, so the data presented here is only for contracts with verifiable spending data.

Spending Trends

Figure 1 below shows that annual spending on DoD ERPs increased every year from FY 2009 to FY 2012.  That trend ended in FY 2013 as spending declined by $318 million due to the impact of sequestration; illustrating that even programs mandated by Congress are not immune to the across the board cuts sequestration demands.  If sequestration continues in FY 2015 and beyond (as looks likely) it is safe to assume that spending will continue trending down to flat.  Concerning FY 2014, $364 million was spent in Q1.  If this trend holds steady throughout the fiscal year, spending will total at least $1.45 billion, reflecting a bit of a rebound due to the restoration of some funding by Congress.  It is doubtful that spending will re-attain levels seen in FY 2011-FY 2012.  Last but not least, annual spending on these DoD ERPs averaged $1.52 billion from FY 2009 to FY 2013.


Total Spending by IT Segment

Government reports obligations by Product Service Codes and contracting personnel are notorious for selecting codes that do not accurately reflect the product or service being rendered.  This being what it is, the following data is to be taken with a grain of salt.  In Figure 2 below categories of PSCs used for obligations on DoD ERP projects have been grouped into IT market segments – Hardware, Software, and Services.  Of the three, services spending far outweighs spending on either hardware or software, coming in at a total of $7.1 billion obligated from FY 2009 to FY 2014.  Obligations for software come in second with $541 million spent over the same 5.3 year period.  Obligations for hardware total $301 million.



Services Spending Trend

Taking a closer look at spending on services related to DoD ERPs, Figure 3 shows that it tracks very closely with the overall trend shown in Figure 1 above.  The exception would be FY 2012, which saw the beginning of a decline in services spending whereas overall DoD ERP spending continue to rise in FY 2012 before declining in FY 2013. 


Spending by Defense Entity

Finally, Figure 4 shows spending on DoD ERPs from FY 2009 to FY 2014 by Defense entity.  Data for only the top 5 organizations has been included here.  Of these, the Navy leads the way with just under $3 billion in obligations on its ERPs.  Army comes next with $2.3 billion in obligations, followed by the Air Force with approximately $1.3 billion.



Several implications can be drawn from this data:

  • No IT program is immune from sequestration.  Sequestration took a bite out of all IT spending across the DoD, including spending on critical ERP implementations that will enable the DoD to meet Congressional mandates for achieving a clean audit by FY 2017.
  • Spending is rebounding somewhat in FY 2014. The approval of an FY 2014 budget rolling back some sequestration cuts will provide some relief to vendors working on DoD’s ERPs.  This relief will not amount to a full recovery of spending levels attained in FY 2012, but it will provide breathing space until sequestration cuts reappear in FY 2015.
  • Services spending is likely to suffer in FY 2015.  The return of sequestration in FY 2015 is likely to translate into a big decline in services spending related to DoD ERPs.  Software and hardware spending are also likely to suffer, but proportionally less than services spending given that far more is spent on services annually.


Defense Business System Improvements Carry Contractor Opportunities

In recent years, increases in requested funding for defense information technology has been attributed to modernization efforts and improving transparency through expanding IT reporting. Unclassified business systems accounts for approximately $7 billion in requested funding annually. Although spending for some of business system efforts is declining, like enterprise resource planning (ERP) implementation, these investment continue to hold significant strategic value.

The Defense Department Inspector General identified six ERP systems as key to achieving auditability goals for 2014 and 2017. Review of changes to the lifecycle costs and schedules for these systems found that delays and cost overruns continue to pose risks to DoD’s ability achieve these auditability goals. 

In particular the Defense Agencies Initiate (DAI) program from the Defense Logistics Agency aims to improve the accuracy and reliability of financial data across the Defense agencies by overhauling budget, finance, and accounting operations and deploying a standardized system solution. To date, DLA has awarded 46 contracts and/or task orders for DAI. Nearly half of these were task orders that were primarily awarded through Encore II. A quarter of the contract awards were through IT Schedule 70 competitions. The remainder of the awards was through standalone contracts. Half a dozen of these incumbent contracts are due to expire by the end of September 2016. Several of the opportunities identified during the first half of FY2014 are linked to support services. 

Major efforts like DAI often encounter numerous challenges throughout development. In a report released in April 2013, the Defense Department’s Inspector General found that, “the Defense Agencies Initiative Program Office spent $193 million from FY 2007 to FY 2012 without ensuring that the system fulfilled capabilities needed to generate reliable financial data.”  Essentially, the program was funded for several years without making sure the major goal of the effort would be met.

Performance pitfalls linked to schedule delays, cost overruns, and other issues have fuelled efforts to improve program oversight and transparency. As increased auditability and transparency support greater scrutiny, these completing these improvements will fuel pockets of opportunity for contractors down the road. Following implementation of its major ERP systems, DoD is likely to target additional efficiencies across business systems through possible cloud migration and analytics. In the meantime, however, budget pressure and oversight requirements continue to stretch program timelines further into the future.
Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWinIQ. Follow me on twitter @FIAGovWin.


DATA Act Passes House

Mid-November, the House passed the Digital Accountability and Transparency Act (or DATA Act), which stands to improve the transparency of federal spending. Introduced back in May of this year, the legislation would standardize and publish government reports and data related to financial management, procurement, and assistance. <font >

Under the legislation, the Treasury department is called to establish data standards in consultation with OMB, GSA, and the heads of federal agencies. In addition to standardizing the information, the data would be made publicly accessible in machine-readable format through the improved site. Recipients of federal funding, including state and local organizations, would regularly report how money is being spent.

The accessibility of this data holds promise for delivering greater transparency to citizens and investors, identifying and eliminating waste and fraud through data analytics, and facilitating automation of compliance for contractors and grant recipients.

Introduced back in May, the House vote on H.R. 2061 passed the House on November 18, 2013. The Senate Committee on Homeland Security and Governmental Affairs passed their version of the bill (S. 994) and reported it to the full U.S. Senate on November 6, 2013. Although a version of the bill passed the House in 2012, it failed to receive Senate committee votes.

Currently, the version in of this legislation in the Senate removes a provision for an expanded role of the Recovery Accountability and Transparency Board’s accountability platform. This existing system has aided inspectors generals to find waste and fraud in stimulus grants and contracts. The substitute amendment not only cuts this accountability platform, it removes “prevent waste, fraud, abuse, and improper payments” from the goals of the bill. It might seem like this move hamstrings the inspectors generals ability to use this data, but that may not be the case. Once the data is available, other systems and technologies may advance to provide more robust analytics solutions. Although the Recovery Board’s accountability platform already exists, the Board itself is scheduled to end its operations in 2015. Unless the final version of the bill expands the accountability platform, inspectors general will be faced with a window to identify a replacement capability for recovering and preventing fraud.

Through its Open Data policy and associated initiatives, the administration has sought leverage transparency to stimulate innovation, increase efficiency, and reduce waste. Back in September 2013, the Data Transparency Coalition hosted the nation’s first open data policy conference to explore opportunities for new tools to streamline processes. As momentum behind these efforts continues and financial reporting requirements persist, contractors and grant recipients should anticipate further spending scrutiny to drive transparency and decrease waste, fraud, and abuse.


Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWinIQ. Follow me on twitter @FIAGovWin.

Treasury’s FIT Office Leading the March to Financial Management Shared Services

OMB has tasked Treasury’s Office of Financial Innovation and Transformation (FIT) to assist in design, implementation, and improvement of federal financial management services shared service provider offerings.  Enhancements to the Federal Shared Services Provider’s (FSSP) framework are meant to stimulate larger agencies to move to a shared services environment for future modernization of core accounting systems.

OMB released a memo in March directing agencies to move their financial systems to a shared services environment.  OMB is encouraging agencies to look to federal providers first, as opposed to commercial vendors.

Using a shared services provider for financial management will provide the following benefits: 

  • Reduce risk of failed systems implementations (cost avoidance) 
  • Free up agency resources to focus on mission-based programs  
  • Ensure greater standardization of data which allows for more transparency  
  • Enable better decision-making by focusing resources on improved data analytics  
  • Make adoption of new government-wide requirements easier  
  • Deliver greater efficiencies and cost savings

OMB has been trying to incite agencies to adopt shared services for financial systems since 2004 with the advent of the Line of Business initiative.  The administration at the time named four federal agency shared services providers – DFAS, GSA, Interior’s Business Center, and Treasury’s Bureau of Public Debt.  Agencies were to move financial processes to one of these four SSPs when it came time to upgrade their current systems.  However, only small agencies made the leap.  Few large agencies made the change, and those that did, found if difficult.

OMB’s controller Danny Werfel stated in a March interview, that the past initiative was slated for agencies to move their entire financial systems to a provider, which became too complex.  The new effort is focused specifically on general ledger systems. 

FIT is playing a critical role in the migration effort by aiding OMB in assessing the current landscape of FSSPs and identify capability gaps, evaluating agency needs, identifying the need for additional FSSPs, and developing a strategy to address gaps.  FIT will also provide oversight for the effort by evaluating any new agency systems modernization plans, establishing a framework for agency migration efforts, maintaining core government-wide requirements, and facilitating the implementation of government-wide operational capabilities.

FIT recently launched a series of teleconferences to introduce the financial management shared services initiative to industry and explain how industry will be engaged throughout the process.  FIT is taking the lead in developing the marketplace where agencies can choose from financial service offerings, service delivery options, and purchase through SSP storefronts.  The ultimate goal is to launch a financial management product and services catalog by spring or early summer of 2014.  FIT will act as a liaison for agency customers, but they will buy directly from the provider.  FIT will work with agencies to develop a modernization timetable which will include the selection and migration to a SSP. 

Werfel expects it will take several years for SSPs to be able to meet all agencies’ financial system needs.  Enhancements to SSP service offerings will be added to the initial catalog and storefronts over time.