Is Federal Government Financial Management Under Control?
By Robert Deller
The federal government reported spending an estimated $19 million for information technology among federal agencies in fiscal 1996 to improve its financial management systems, in part as an answer to continuous concerns from Congress that federal agencies were not attaining effective financial management.
The Office of Management and Budget had repeatedly called for information technology to support financial management systems. For two years, agencies provided infotech budget numbers so that OMB could assure that appropriate expenditures were targeted to accomplish financial management objectives.
Based on 1996 infotech budget data and agency program documentation, agencies planned to spend 10 percent of their infotech dollars for financial management support.
These dollars have not been evenly distributed across the agencies, according to data tracking five agencies with the largest proportion of infotech dollars for financial management. (Figures were not available for Defense, Justice, Energy and Veterans Affairs.)
The General Services Administration maintains a special contract schedule for financial management technical services under its Federal Supply program. According to GSA, fiscal 1994 financial management supply schedule purchase orders totaled $24 million. Professional services for financial management accounted for 96 percent of this total. For fiscal 1995, $40 million was spent on schedule purchases with 93 percent accounted for by professional services. Software products account for the remaining dollars; no hardware is distributed.
The Chief Financial Officer Act was implemented to understand and correct the depth and magnitude of financial management problems. The regular, periodic financial statements and independent audits called for under the act are, however, after the fact. Systems are required for effective financial performance, and management of these systems is required. Dollars are needed to implement the act. However, with growing concerns for increased spending to address the highly visible year 2000 date problem, there is little likelihood that spending growth will occur to satisfy financial management requirements.
The federal financial management market will grow at a relatively healthy rate over the next couple of years but will level off after that. Through fiscal 1998, annual growth is expected at 8 percent and will then fall to 2 percent. By comparison, the overall infotech growth rate for the same period is 6 percent.
Much of the financial management improvement efforts have been accomplished or are under way, as reported in several government reports, including GAO audits. Remaining efforts are aimed at completing requirements. These efforts will continue over the next three years. Following that, consolidation of financial management systems will reduce overall spending on operations, and existing support systems will undergo maintenance and some upgrade. Professional services functions will demand most of the spending, while any software products will likely be commercial, off the shelf. Very little hardware will be required except to improve telecommunications capabilities. Major financial management applications will continue to operate on mainframes acting as databases and as servers on distributed networks.
Growth in this market is not limited by the size of the government's information technology budgets. In response to questions specifically addressing sources of funding for professional services support, agencies reported that less than 25 percent would come from infotech.
Until the government completes its re-engineering of financial management, agencies will be expected to improve their abilities to collect revenues to reduce program spending excesses.
Such programs are fiscal 1997 presidential priorities. Developers of financial management systems and services should be mindful of budgets reported by the agencies in this year's accounting to OMB.
Robert Deller is an industry analyst with Global Systems & Strategies Inc., Vienna, Va. He can be reached at email@example.com
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