Financial Management Shared Services: A Guide for Federal Users
David, Irwin T., The Journal of Government Financial Management
Most federal agencies, large and small, are using or considering use of some form of shared services as they modernize, update or replace their financial management systems. Reasons for shared services include cost reduction, standardization, maintaining (or obtaining) unqualified opinions on financial statements, resolving reportable conditions and/or material weaknesses in internal controls, adapting new financial statement and/ or audit requirements, improving effectiveness in financial management operations and/or providing useful financial information to program officials for decision-making.
The private sector has a long and successful history of using shared service arrangements to reduce costs and fulfill other financial objectives. Since the early 1990s many federal agencies have looked to shared services as a way to reduce the cost of financial systems delivery while improving quality. Large agencies typically established shared service centers within the agency while smaller agencies looked to outside government providers (so-called "crossservicing"). Now, however, in response to a presidential initiative and U.S. Office of Management and Budget (OMB) guidance, all agencies are required to consider opening their financial management operations to competition at the time of a financial systems "life cycle" event (for example, new system, major upgrade, modernization). Agencies must include one or more of the OMB designated Centers of Excellence1 (COEs) among the competitors.
The success of the private sector with shared services, the mixed record of federal agencies in implementing new systems and OMB's new competition and COE requirements, led the AGA Corporate Partners Advisory Group (CPAG) to undertake a research project on shared services, sponsored by IBM Business Consulting, a CPAG member. The project objective was to provide guidance to users of federal government financial management operations shared services in most effectively using such services. The author of this article was commissioned to perform the research, with support from IBM on the literature review.
This is the first research document that focuses solely on federal users of financial management shared services. The research was performed by interviewing knowledgeable individuals in and out of the federal government and conducting an extensive literature search.
Definitions used in this research:
Shared Services: Financial and administrative services being provided by a single organization established to provide such services efficiently and effectively for the benefit of multiple other organizations or entities.
Shared Services Provider or Shared Service Center: A separate and distinct organization established to provide financial (and other services) to other entities efficiently and effectively. Providers may be in-house (captive) providers, external federal providers or external private sector providers.
Shared Service User: The organization or entity that receives the service; the customer or client.
Interviewees and the literature agree that sharing of financial management services provides users with a positive strategy to achieve economies of scale and of skill, irrespective of the service delivery method. Benefits cited include cost reduction, easier implementation of new systems, more time for financial and program staff to focus on analysis and decision support, and more time for agency managers to focus on core missions and standardization of processes.
A Summary of the Guidance
The focus of this research was on guidance based on federal and private sector experience. The research was not a complete survey of all federal financial management shared services nor an audit of reported benefits. The research provides guidance and recommendations for users and potential users so that they can maximize the opportunity for success of the shared service endeavor. …