[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
 OMB'S FINANCIAL MANAGEMENT LINE OF BUSINESS INITIATIVE: TOO MUCH TOO 
                                 SOON?

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      FINANCE, AND ACCOUNTABILITY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 15, 2006

                               __________

                           Serial No. 109-164

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform



                                 ______

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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
JON C. PORTER, Nevada                C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas                BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia        ELEANOR HOLMES NORTON, District of 
PATRICK T. McHENRY, North Carolina       Columbia
CHARLES W. DENT, Pennsylvania                    ------
VIRGINIA FOXX, North Carolina        BERNARD SANDERS, Vermont 
JEAN SCHMIDT, Ohio                       (Independent)
------ ------

                      David Marin, Staff Director
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

   Subcommittee on Government Management, Finance, and Accountability

              TODD RUSSELL PLATTS, Pennsylvania, Chairman
VIRGINIA FOXX, North Carolina        EDOLPHUS TOWNS, New York
TOM DAVIS, Virginia                  MAJOR R. OWENS, New York
GIL GUTKNECHT, Minnesota             PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
JOHN J. DUNCAN, Jr., Tennessee

                               Ex Officio
                      HENRY A. WAXMAN, California

                     Mike Hettinger, Staff Director
               Tabetha Mueller, Professional Staff Member
                          Erin Phillips, Clerk
            Adam Bordes, Minority Professional Staff Member
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 15, 2006...................................     1
Statement of:
    Combs, Dr. Linda, Controller, Office of Federal Financial 
      Management, Office of Management and Budget, accompanied by 
      Karen Evans, Administrator, Office of Electronic Government 
      and Information Technology, Office of Management and Budget     5
    Kull, Joseph, PricewaterhouseCoopers LLP; John Marshall, vice 
      president, CGI Federal; and Clifton A. Williams, partner, 
      Grant Thornton LLP.........................................    43
        Kull, Joseph.............................................    43
        Marshall, John...........................................    54
        Williams, Clifton A......................................    68
Letters, statements, etc., submitted for the record by:
    Combs, Dr. Linda, Controller, Office of Federal Financial 
      Management, Office of Management and Budget, prepared 
      statement of...............................................     7
    Kull, Joseph, PricewaterhouseCoopers LLP, prepared statement 
      of.........................................................    46
    Marshall, John, vice president, CGI Federal, prepared 
      statement of...............................................    58
    Platts, Hon. Todd Russell, a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........     3
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................    90
    Williams, Clifton A., partner, Grant Thornton LLP, prepared 
      statement of...............................................    70


 OMB'S FINANCIAL MANAGEMENT LINE OF BUSINESS INITIATIVE: TOO MUCH TOO 
                                 SOON?

                              ----------                              


                       WEDNESDAY, MARCH 15, 2006

                  House of Representatives,
Subcommittee on Government Management, Finance, and 
                                    Accountability,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 3:05 p.m., in 
room 2247, Rayburn House Office Building, Hon. Todd Russell 
Platts (chairman of the subcommittee) presiding.
    Present: Representatives Platts and Foxx.
    Staff present: Mike Hettinger, staff director; Dan Daly, 
counsel; Tabetha Mueller, professional staff member; Erin 
Phillips, clerk; Adam Bordes, minority professional staff 
member; and Jean Gosa, minority clerk.
    Mr. Platts. This hearing of the Government Reform 
Subcommittee on Government Management, Finance, and 
Accountability will come to order. The ranking member, Mr. 
Towns, will be joining us shortly, and if he has an opening 
statement, we will have him present it when he arrives or have 
it submitted for the record as he so chooses.
    In 2004, the Office of Management and Budget announced the 
creation of its Lines of Business Initiative. This program was 
designed to consolidate duplicative functions across the 
Federal Government and ultimately save taxpayer dollars by 
using a shared services model to provide back office functions. 
While the concept has significant merit, we want to use this 
hearing today to discuss several considerations and concerns 
with respect to this initiative. The hearing will also provide 
OMB with a chance to clarify its guidance to Federal agencies 
and give this committee a chance to hear from outside experts 
and private sector stakeholders. This hearing will provide a 
very important dialog on this new and important issue.
    Among the concerns that we will discuss today are timing 
issues, contractual relationships between host and customer 
agencies, the current state of Federal financial management, 
and whether we are poised to make effective use of the shared 
service model. We will also examine the Center of Excellence 
concept. It's important to note that of the four COEs, only one 
has received a clean audit opinion, with no material weaknesses 
or reportable conditions, and is compliant with the Federal 
Financial Management Improvement Act of 1996.
    If this initiative is to be successful, we must ensure that 
all stakeholders are fully informed and that the user community 
is ready, willing and able to embrace this initiative. Further, 
the Center of Excellence concept should advance the goals of 
the Chief Financial Officers Act and FFMIA, strategic financial 
management, timely information for program managers and 
effective stewardship.
    Our witnesses today will provide the subcommittee with 
insight on the creation of Centers of Excellence and how 
Federal agencies can best continue to improve their financial 
management and reporting. We're pleased to have two panels of 
witnesses today. On the first panel will be the Honorable Dr. 
Linda Combs, Controller at the Office of Federal Financial 
Management at the Office of Management and Budget. Dr. Combs is 
accompanied by Ms. Karen Evans, Administrator for the Office of 
Electronic Government and Information Technology at the Office 
of Management and Budget who will participate in the question 
and answer portion of the program.
    Our second panel will include Mr. Joseph Kull, partner at 
PricewaterhouseCoopers; Mr. John Marshall, vice president at 
CGI Federal; and Mr. Clifton Williams, a partner at Grant 
Thornton. I look forward to the testimony of each of our 
witnesses. I also appreciate the efforts in preparing both your 
written statements and your oral statements for today's 
hearings.
    As I say, when Mr. Towns arrives, after our initial opening 
statement, if he has a statement to make, otherwise we'll 
complete the opening statement of our first witness and then go 
to Q and A.
    [The prepared statement of Hon. Todd Russell Platts 
follows:]

[GRAPHIC] [TIFF OMITTED] T9332.051

[GRAPHIC] [TIFF OMITTED] T9332.052

    Mr. Platts. It is the practice of the committee if I could 
ask both our panelists to stand and take the oath.
    [Witnesses sworn.]
    Mr. Platts. Thank you. The clerk will note that the 
witnesses affirmed the oath.
    The subcommittee appreciates your testimony and preparation 
for this hearing and the knowledge and insights that you're 
able to share with us, and with that, Dr. Combs, if you'd like 
to proceed, and I think we're set at 5 or 6 minutes but we want 
to make sure you have a chance to cover, whatever you need to 
complete your opening statement, and then we'll move forward. 
Thank you.

  STATEMENT OF DR. LINDA COMBS, CONTROLLER, OFFICE OF FEDERAL 
    FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET, 
ACCOMPANIED BY KAREN EVANS, ADMINISTRATOR, OFFICE OF ELECTRONIC 
GOVERNMENT AND INFORMATION TECHNOLOGY, OFFICE OF MANAGEMENT AND 
                             BUDGET

    Dr. Combs. Chairman Platts, Congressman Towns and members 
of the committee, I thank you for this opportunity today to 
appear before you to discuss the Financial Management Line of 
Business Initiative. I am delighted to provide you with an 
overview of the Financial Management Line of Business and to 
explain how it supports our mutual and overarching objective of 
ensuring that Federal managers have accurate and timely 
financial information for decisionmaking. I greatly appreciate 
the questions that you asked me to address in my written 
testimony.
    I believe that this subcommittee is identifying very 
important questions, and I look forward to working with you to 
answer those questions. This afternoon I would please offer 
that I'd like to use the time I have to share with you my 
overall vision for financial management for the Federal 
Government and to talk a little bit about how the Financial 
Management Line of Business actually fits in with that vision.
    First of all, I truly want to emphasize that I share with 
you that this vision is a very long-term vision and it is not 
one that will be achieved overnight. My vision is based upon 
some of the challenges that we face today in our overall 
financial management arena and the opportunity we have to give 
our financial leaders the tools they need to meet those 
challenges.
    And if I could for just a moment I'd like to share with you 
what I envision. I envision that each agency will have a 
financial system solution that seamlessly exchanges information 
among its own organizational components and business systems; 
in other words, they are able to talk to one another within 
each agency. Financial management systems across the Federal 
Government will eventually seamlessly exchange information and 
provide leadership with essential financial information for 
decisionmaking.
    I envision that Federal agencies will operate their 
financial organizations at the right cost by following standard 
processes that strengthen internal controls and reduce 
financial risk in government programs. I envision that there 
will be transparency in terms of financial management 
objectives, transparency in the options that agencies can take 
to meet those objectives, and transparency in terms of how we 
measure the result of those efforts.
    I believe that agency Chief Financial Officers will spend 
more time collaborating with program managers on improving the 
actual stewardship of taxpayer resources and delivering the 
right financial information to inform smarter decisions and 
spend less time dealing with the heroic efforts required for 
compliance and for daily operations.
    I envision that there will be a limited number of truly 
excellent, high performing and stable shared service solutions 
providing a competitive alternative both to the public and the 
private sector, and that price and quality will both be taken 
into consideration for agencies that are ready to modernize 
their financial management operations.
    I envision that future financial management leaders will 
indeed be as committed to excellence as the dedicated 
professionals that I have the honor of working with every day 
now. To ensure that we remain on the right track, we must share 
our feedback and our programs more often, we must develop and 
refine our plans more strategically, we must hold ourselves 
even more accountable for outcomes, and, as with the financial 
management line of business, we must identify more options that 
actually deliver true results.
    Rest assured that I will continually work to overcome the 
barriers of uncertainty and open the roads of opportunity. I 
look forward to continuing to work with you to achieve this 
vision. And the remainder of my written testimony is submitted 
for the record.
    [The prepared statement of Ms. Combs follows:]

    [GRAPHIC] [TIFF OMITTED] T9332.053
    
    [GRAPHIC] [TIFF OMITTED] T9332.054
    
    [GRAPHIC] [TIFF OMITTED] T9332.055
    
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    [GRAPHIC] [TIFF OMITTED] T9332.066
    
    [GRAPHIC] [TIFF OMITTED] T9332.067
    
    Mr. Platts. Thank you, Dr. Combs. Your written testimony is 
accepted in the record, and again I appreciate the in-depth 
preparation of that testimony and your statement here today.
    First, I'd say that your goal here is one that we do share 
and that we truly get to state-of-the-art 21st century 
financial systems across the Federal Government and find what 
is the best match for each individual agency or department 
depending on their own circumstances.
    You mentioned that you are and continue to work through 
clarification of what is expected and I think that's where 
we'll start with some questions. In a broad sense in some of 
the written documentation in the President's budget and your 
memo of last December 16th in dialog between the committee 
staff and your staff as to what is the mandatory nature of the 
COE model and specifically for Federal agencies, I'm uncertain 
based on what we've been given whether it's mandatory that 
every agency will either become a COE within the Financial 
Management Line of Business, or migrate to one, or is it 
mandatory that they just have to do an analysis of whether they 
need to become one or do one but not have to necessarily become 
one to migrate. So if you could clarify that specific and start 
there.
    Dr. Combs. Thank you. First of all, we must start with the 
specific systems that need either new financial systems or an 
upgrade to their financial systems. Those are the ones that 
would be in the category that you just asked about. And the 
answer is they must consider the step of either becoming a COE 
or they must consider migrating to a COE.
    And as you mentioned in your question a moment ago, one 
size does not fit all. We are aiming to look for alternatives 
for specific agencies. First and foremost, they must make good 
business decisions as they do the analysis, and I must also add 
they're not in this alone when they're looking to make 
financial management changes. They have a wealth of services at 
their disposal in OMB to help them through.
    We are looking forward to guiding many of these efforts as 
we go along to make sure that they have all the right 
information that they need. We're constantly updating and 
upgrading some of our information that we've learned over the 
past few years, and will continue to do that. We're continuing 
to get information from both the private sector as well as from 
you folks about what you think is working and what you hear. We 
welcome those kinds of opportunities. But they do need to 
consider the step and we just think they first and foremost 
have to make a very good business decision.
    Mr. Platts. So, one, if they're not making a major rewrite 
or overhaul of their financial management systems then they 
really don't fall into this area at all. It's only if they go 
to make a change in their financial management systems then 
this analysis has to be done.
    Dr. Combs. Well, the thing I would clarify on that is that 
there are certain thresholds that they need to look at and I 
think within the financial management arena, as part of our 
integration here with e-Gov, there are certain thresholds that 
they need to meet and this would kick in.
    Mr. Platts. Maybe we can expand so I know what those 
thresholds are and because some of the confusion, Ms. Evans, in 
your conversations with my staff, it's different than what 
we're hearing today, that it is mandatory that everybody's at 
some point going to have to become a COE or migrate to a COE.
    Ms. Evans. And so this is where the partnership comes in 
and this is the discussion that I have had with your staff, is 
the way that we constructed the governmentwide business case 
based on the analysis that came from the interagency task 
force. So there was a task force that made recommendations to 
us, there is a threshold, as Dr. Combs has laid out, and the IT 
analysis, the IT portion of this is mandatory. And so that, for 
lack of a better description, would be similar to application 
hosting.
    So you do have to do that analysis and you do have to go 
forward. However, there is a piece that you brought up that if 
you aren't doing a major upgrade, if there isn't a major piece, 
so if an agency has a plan in place right now to implement a 
financial management system and we are monitoring that through 
several different processes that we have in place, if they meet 
all their milestones to go forward with that implementation 
from an IT perspective only, they don't fall into making the 
analysis of becoming a Center of Excellence or going to a 
Center of Excellence until that plan--they don't meet the 
milestones in the plan. That's the threshold.
    So if I'm an agency and 2 years ago I had a plan that's in 
place and I have been executing that plan accordingly and going 
along meeting my milestones, I'm within the policy where we say 
it's like 10 percent of cost schedule and performance, and 
they're going along, then they continue along with that because 
we don't want to jeopardize the objective, and that is having 
good financial management information and having a system in 
place that allows you to manage that. But if they fall off of 
that plan and say they have to go back and rebaseline because 
they've missed stuff.
    Mr. Platts. So if they have a plan in place and they're 
meeting their stated benchmarks or thresholds that were 
identified, then it's not mandatory to become a COE or migrate?
    Ms. Evans. Not at this point in the life cycle. This is all 
based on the life cycle of the investment. So as long as they 
continue on the path and they're doing well, we wouldn't go to 
that agency and say stop everything you're doing.
    Mr. Platts. How about a specific example is NASA, where 
they are with their enterprise resource system, and they've 
taken some big steps trying to reorganize their financial 
management. How would this apply to them?
    Ms. Evans. In the particular case that we discussed with 
your staff, with NASA, they do have an extenuating circumstance 
where a vendor would come in and out of their control there's a 
change that's occurring within the execution of that plan, 
where they have to upgrade based on the product that they had 
selected.
    Because that's a major change in the system, that is where 
we then ask the agency to go and do the analysis, does it make 
sense for you to continue on this way making a good practical 
business decision analyzing across the board of what does it 
mean if I continue on this path doing it myself or I need to 
look at can I share the resources of other agencies going 
forward who will have this similar issue that NASA has because 
that particular vendor is upgrading.
    Mr. Platts. I want to try to make sure I'm following here 
because your statement that with the IT component, the IT 
portion it is mandatory for any IT investment----
    Ms. Evans. Yes.
    Mr. Platts. That you're going to become a COE or migrate to 
one, not just do the analysis.
    Ms. Evans. No. Let me restate that. It is mandatory that 
you have to do the analysis and that you have to meet the 
threshold in the business case, OK. So the business case, in 
the governmentwide business case it's constructed in a tiered 
approach, so when you look at it, the first tier, which is the 
IT application hosting area, that is where you would become 
either a service center or a center, or get your services from 
somewhere else for the application piece only. So it doesn't 
mean that all the financial services that the Government does 
would automatically move to the Center of Excellence. So 
there's a real fine line in the way that you're saying it.
    Mr. Platts. So for every department, agency, for the 
application hosting part of every department agency, it is 
mandatory that either you are a COE or you migrate to a COE.
    Ms. Evans. Yes. That you do that analysis. The basic black 
and white line is yes, sir, from the IT portion.
    Mr. Platts. I think our dialog right here is part of the 
confusion within the financial management sector of the Federal 
Government, is that just getting to what is mandatory if 
anything I don't think has been real clear, and I think the 
bottom line is that portion is mandatory.
    Ms. Evans. Yes. A portion of it is mandatory the way that 
the business case was constructed, and the simplest way to 
explain it is the application hosting. So it's like where I buy 
my servers from, where my servers would be housed, that type of 
piece. And that is the floor, that's the basic mandatory piece. 
So think of it as does it make sense that NASA has to buy a 
whole host of servers and then DHS would buy a whole host of 
servers and Justice. So it's like the hardware and then the 
pipes that run that.
    Mr. Platts. When you go beyond that, then it's maybe you 
have to migrate or become a COE, depending on whether you're 
meeting benchmarks in your delineated financial plan.
    Ms. Evans. That's where it kicks over to the analysis that 
Linda's team is doing.
    Mr. Platts. You talked about the benchmarks. Can you expand 
on that and what you mean by where the benchmarks are achieved 
or reached?
    Dr. Combs. I think the best way to describe it is that if 
an agency comes in and they have compelling evidence that they 
have a best value or a lower risk alternative, we really want 
to help them consider that. So when we say, as Karen just 
pointed out very well, a COE or the best alternative, we're 
willing to listen to them if they have conscientiously 
considered what good business decision there is to be made 
relative to that financial management piece.
    So I think exceptions to this policy will be made based 
upon good business decisions when it kicks over to me at that 
point, as Karen just made.
    Mr. Platts. I guess before it gets to you, Ms. Evans, with 
it being mandatory on the application aspect, obviously--what 
assessment is done there as to whether they need to become a 
COE or are determined to be a COE or migrate to one. There's an 
assessment done I guess there first before that mandatory 
effort takes place.
    Ms. Evans. Yes. What happens is a series of activities, the 
first starting with the business case that an agency would 
submit. They submit that on an annual basis to us for their IT 
investments and we go through an extensive analysis of how they 
manage IT overall in an agency.
    So this is one of many services that they provide. So we 
look at all those business cases, we analyze those, we also get 
their cyber security information through our annual reporting 
requirements. We look at a whole lot of things, their 
architectural efforts, and that is their overall plan, what 
they have today, what they're moving toward in the future, and 
we look at that in totality along with their ability to 
execute.
    So we also get on a quarterly basis reports from the 
agencies of what we call a high risk investment. We have a list 
of what we have as high risk investments in each of their 
portfolios. So we monitor their performance on a quarterly 
basis as well.
    Mr. Platts. And then you'll make a determination that yes, 
you're a COE?
    Ms. Evans. Well, we made the determination, and this is 
another one where I think I agree we need to do a better job 
communicating out what needs to be done here. What we do is we 
also have a due diligence list. If an agency comes in and says 
I have decided that I do want to be a COE, we have very 
specific instructions then that go out to the agencies every 
year on an annual basis so that they can make this 
determination through their internal capital planning process. 
When we go through this list, and what they have to do is 
construct their business case in a way that shows this is what 
it costs for me to maintain this service for myself, meeting 
all the objectives that they have to meet, the financial 
management, measuring that information, doing everything that 
comes out of the policy area from Dr. Combs' area.
    Then what they have to do is construct the business case in 
a way of showing what is the incremental cost associated with 
bringing on additional customers, and then we evaluate that 
business case based on their capability to provide the service.
    So what we say, and if you go back when we announced these 
in the President's budget the very first time, is we said this 
group of people appear to have the capability to become Centers 
of Excellence. So it's not like boom, you're a Center of 
Excellence and that's it and all the business comes to you. We 
were very careful about saying they appear to have the 
capability to be able to do this based on the way that they 
constructed the business case and their business plan in order 
to meet the same objectives that they have now and then take on 
additional services.
    Mr. Platts. So your determination is they have the 
capability, but you tell them so they know whether they have to 
migrate to somebody else or stay in-house.
    Ms. Evans. From an IT perspective we work through these on 
a case-by-case basis. If you haven't been determined to have 
the capability in this area to be a financial management Center 
of Excellence, then their existing plan, so we'll go back to 
the first answer I gave, they continue on those existing plans 
that they have to meet their financial management system 
implementations unless we have notified them through this 
ongoing monitoring process that we have that you have missed 
all your major milestones and then we go back and work with the 
agencies, just as Dr. Combs said, to work on a plan to mitigate 
that risk and work through with them what is the best solution 
for that.
    Mr. Platts. That agency knowing here's what we're doing or 
here's what we think we're doing, perhaps. At some point you 
have to give them a clear answer that you're authorized to go 
forward as delineated, or nope, you have to migrate elsewhere. 
You have to make that cut.
    Ms. Evans. Sure. We do that every year through the 
President's budget process. So when we get these business cases 
in and we evaluate them and through the ongoing oversight that 
we have through the quarterly reports that we get, I mean it's 
a constant dialog so it's not like once a year we give them 
this information and they don't know what they're supposed to 
do for the next year. So we get this information and it's a 
constant dialog both with my staff and Dr. Combs' staff. So an 
agency knows maybe not as clearly as we need to do this and 
that we have to continue to put frequently asked questions out 
and update the policy, but they have based on the way that 
we're working this and the process that we have, they know what 
their plans are and how they have to--and the plans that we're 
holding them accountable to.
    Do we need to be clearer? I would say there are a lot of 
questions out there that we need to answer as we move through 
this. And as Linda's vision was, this is not going to happen 
overnight; this is a longer term effort.
    Mr. Platts. How about a specific example, the 600 pound 
gorilla, Department of Defense, 4,200 different financial 
systems out there. If it's mandatory that they are either 
becoming a COE or migrating, based on my 3-plus years of 
chairing this subcommittee, DOD has no chance of being a COE 
any time soon. Hopefully some day or some lifetime, perhaps, 
but I can't imagine who is out there ready to be a COE to say 
yes, we're ready to take on all of your application hosting. 
Just seems like an impossibility. So I assume it is not really 
mandatory for certain agencies. Is that a fair assessment?
    Dr. Combs. I think that is a fair assessment. I think one 
of the things that I'd like to add, to clarify, when we get to 
the point where we're having a migration document, and we're in 
the process as I mentioned in my written testimony of upgrading 
that documentation which we are going to share with this 
committee and with a number of other outside entities by the 
end of this month, it will spell out more completely a menu of 
shared services and more completely the due diligence checklist 
that Karen spoke about.
    There's some changes that we need to make to that and we're 
planning to do that.
    I think the specific question you asked, Mr. Platts, about 
the Department of Defense, the transition plan that was 
submitted by the Department of Defense was looked at very 
favorably I think by the General Accounting Office and that 
does include a lot of business transformation, not just the 
financial management piece of that, but that is all included in 
that entire business transformation, and as the financial 
systems investment piece of that we need to continue to work 
with them to see what they can do now because anything we do to 
help them now will help them with their audit, it will help 
with internal controls and it will make them a more excellent 
financial management arena.
    Mr. Platts. So if you're at DOD though, so the answer is to 
the mandatory requirement, it's not mandatory because of the 
reality of their circumstances?
    Ms. Evans. Right. They submitted their transformation plan 
which they're required by law and there are several pieces to 
that transformation plan which all of us have been involved in. 
So they're moving through that part. So from our perspective 
that would be what Dr. Combs talked about earlier where there 
would be expectations we need to make good business decisions 
in order to achieve the goal, and the goal here is 
transformation of many things happening within DOD, one of 
which happens to be the financial management systems.
    Dr. Combs. Can I just add one thing to that? When I talked 
about this being a very long-term effort, I'm really talking 
long-term. I'm talking about some of the long-term you 
mentioned when you gave me your question a moment ago about 
Defense. Any time we start on this journey we're going to have 
to look at some things that are not optimum right now but 
they'll get us to where we eventually want to go. When we go on 
any kind of journey, we may have to go across a mountain, we 
make look at some stoplights along the way. All of those things 
serve us in getting to the long-term vision. There may indeed 
be some, ``best practices or some shared services'' right now 
internally within the Department of Defense that they can use 
and can standardize and consolidate and make use of right now. 
If that's the case, and as we go through this we will 
definitely look at those internal shared services as a 
potential mid-level step for them. And I think that is a 
reasonable and reasoned approach as we go through this, not 
thinking that's going to be the most wonderful long-term 
solution, but maybe it is. Maybe that's where we need to be 
with a department like that.
    Mr. Platts. If we set DOD aside, because it certainly is a 
unique animal, I mean the size of the department and the 
challenges it has, we look at the rest of the departments and 
agencies and with the four COEs that are out there right now 
certainly don't have the ability to assume the responsibility 
for all the other department agencies, and everybody is not 
going to be a COE overnight. So what is your timeframe for 
everybody else becoming a COE or migrating, and how does the 
private sector factor into here, and maybe a second part of it 
is when we look to the private sector--I guess the first part, 
right now for a department or agency out there, are they going 
to do a more theoretical analysis of becoming a COE versus 
migrating, since in reality they aren't one and can't migrate, 
so in a sense it's theoretical right now?
    The second part is if they're going to migrate to the 
private sector, will an A-76 study have to be done for that to 
occur?
    Dr. Combs. Well, first of all, there is no requirement that 
they actually move to a shared service solution at a specific 
time.
    Mr. Platts. But they have to be a COE or move at some 
point, right?
    Dr. Combs. Well, it's one option that they are looking at.
    Mr. Platts. Now I'm backing up because I thought we just 
said it's mandatory that at least on one part, the IT 
application hosting that, yes, you must be a COE or migrate. So 
it's not an option.
    Dr. Combs. That's the IT perspective, in that they would be 
that from the IT perspective.
    Mr. Platts. On the IT perspective, what are they to do 
today if they're not a COE and there is no feasibility of 
everybody migrating to an existing COE, in the next year what 
do all the departments and agencies do regarding their IT 
portion?
    Ms. Evans. The way that we have constructed this and the 
way that we're working through this with the agencies is that 
they would do, the business case itself only assumed that two 
major departments would start down that path. That doesn't mean 
that you are completed and totally migrated this fiscal year. 
What it means is you start down the path and you do everything 
that Dr. Combs was talking about. You look at this as one of 
the options. You look at the IT portion of this and you say OK, 
I'm not going to do this any more internally within my agency. 
I have a contract up for recompetition that provides this 
portion of the services. What is the best way for me to compete 
that service.
    So they start the planning activities moving down that 
path, providing all of the activities that they need to have. 
As Dr. Combs said, there is not a time line that says these two 
agencies will be completed at the end of this fiscal year, 
those five at the end of that fiscal year. It's that you are 
starting down this journey, as Dr. Combs has outlined for us, 
and you're doing the analysis and you have a plan that you're 
going to implement that's going to address the mandatory 
portion. It's not like you can turn it off 1 day and turn it on 
the next day over at your other service provider.
    So you'd have to have the plan, you'd have to migrate that, 
and you'd have to mitigate the risk.
    Mr. Platts. On that portion that is mandatory do you not 
have a specific timeframe, these two this year, five next year, 
that within 2 years, 5 years, 10 years?
    Ms. Evans. The business case assumes 10 years in order to 
realize the benefits, that this would all be analyzed and done 
within a 10-year time period.
    Mr. Platts. So that everybody would be migrated to a COE or 
become a COE within 10 years on the mandatory portion.
    Ms. Evans. Yes.
    Mr. Platts. On the non-IT portion, that assessment will be 
done as to whether they continue on their existing, like NASA, 
or have to do something different with the COE.
    Dr. Combs. Yes. I would say, you asked about the private 
sector in your question as well, and we've had a couple of 
agencies fairly recent, EPA and Agriculture have both submitted 
proposals where they're considering both the Federal as well as 
the commercial COE at the same time, and we think that's 
healthy competition.
    Mr. Platts. And the Circular A-76, is that review required 
as part of that?
    Dr. Combs. Yes. If it's 10 employees, the specific 
regulations that are required of that. And we think that 
competitive migrations are a good thing.
    Mr. Platts. It would seem there's going to need to be a 
healthy partnering with the private sector to handle the volume 
we're talking about.
    Dr. Combs. Absolutely. That's an excellent point. Because 
we think that we can only get to the vision that we laid out in 
the very beginning if we have a very healthy relationship and 
collaborative effort both with private and public sector shared 
servicing arrangements.
    Mr. Platts. The 10-year timeframe that we talked about is 
similar to Department of Transportation, which is kind of a 
model out there. Basically what they've done in getting to 
where they are, my understanding is they are a good model but 
they're still kind of working on it. So when we talked about 
all departments and agencies is it 10 years from kind of when 
they begin the process or 10 years from now for everybody? I'm 
not sure what is envisioned, how that general timeframe of a 
10-year span applies.
    Dr. Combs. Well, thank you for bringing that up because 
that does bring up another important opportunity we have here. 
We'd like for it not to take 10 years for every agency to do 
that, we'd like for it to be done sooner, and because it was 
the first in that it's the only still yet department that's 
operating on one instance of software for their entire 
financial management system, we think that it is a good model 
and we very much would hope that there's some other agencies 
and departments that can learn from the experiences that they 
had and that there are opportunities for sharing those best 
practices and maybe with future endeavors we can accelerate 
that time line a little bit because some of the departments are 
going to have more data integration difficulties than others, 
and having been at DOT, I would say we had some very large 
challenges there with the data integration piece, and that is 
one of the more troublesome aspects of incorporating into any 
new financial management system as you're aware.
    So all of those conversions that have to take place are 
very troublesome and take up a lot of time, energy and effort. 
But we would hope we could learn from that and as we develop 
further work through this, we can standardize more, we believe, 
and we can make things more transparent, and we believe that we 
can have better opportunities and that maybe it won't take 
quite that long on the next one.
    Mr. Platts. And I hope that's accurate, that we get better 
and better at it and learn from each other within the 
departments and agencies, and if we could get DOD to replicate 
DOT on that one plan or one providing system, that would be a 
miracle. But we won't hold our breath on that effort.
    I want to move on to a couple other areas. Just what is 
expected and the timeframe for the departments and agencies. 
When we talk about the migration, what's mandatory, what's not, 
the IT part versus the non-IT portion of the financial 
management systems. That we work hard at making sure that's 
very clear out there to the departments and agencies and what 
their expectations are so that buy-in occurs if we're going to 
be successful. We certainly need that from everybody. While we 
hope it's quicker, that from some of the hearings we've had and 
regarding expenditures of funds to adopt new systems that find 
out that we spent $100 million and didn't get what we need, 
using the Bureau of Public Debt, which seems to have taken a 
very methodical approach in doing what they're doing, that 
model of methodical deliberateness is appreciated so that we 
do, whatever we migrate to, COEs or work with entities that 
become COEs, that those models are truly followed in all 
aspects.
    I think, Dr. Combs, you mentioned earlier about the service 
level agreements and getting more guidance I think by the end 
of this month. That part of that, if there's a failure of a COE 
to perform up to par, expectations, that the host COE is going 
to bear the cost of the new migration, wherever it's to. Can 
you share whatever you have today while you're formalizing or 
finalizing this guidance and is there any kind of arbitration 
plan envisioned as would be in the private sector? Typically, 
there it gets to litigation, ideally arbitration. But what do 
you envision for how to deal with that service level agreement 
between a COE and somebody who's migrating to that?
    Dr. Combs. I think we're continuing to look at and 
encouraging good customer service and dual accountability 
between anyone that would engage in a Center of Excellence 
activity or shared service with their service provider and the 
customer agency. And any way that we can work through the 
transition of making sure that service level agreements are 
laid out carefully up front, and one of the things we're going 
to be looking at in the document I mentioned is trying to make 
sure that we've built in some of the best practices and some of 
the very best encouragements we possibly can to have that 
accountability between those two parties.
    But if something should happen and one does not live up to 
their agreement, then I think for the most part we will look at 
things that are going on today. I mean there are shared 
servicing arrangements that are going on today in many 
different aspects of what agencies, one agency does for 
another. There are lots of agreements out there. And most often 
those are able to be settled between the agencies. When that 
does not happen, OMB plays a role, generally in arbitrating 
between those two agencies. And for now, on this path I would 
envision that's about where we would end up.
    Now in terms of the mechanisms specifically, we need to 
look at that, and I appreciate you bringing it up. We look 
forward to any other arrangements that you feel like you are 
aware of and we'd be happy to look at those so we continue to 
evaluate best ways of doing that.
    Mr. Platts. As part of that it will be kind of two types of 
evaluation where OMB plays that role today between agencies, 
but if we are going to use more and more the private sector 
COEs, then it's a different ballgame because it's not internal 
and so you have a whole different legal arrangement. Do you 
envision that being some of the contractual terms of a private 
sector COE up front agreeing that whoever the identified body, 
if it's OMB, or go to court, or are envisioning something more 
internal still to arbitrate yes, you failed to do as you 
contracted to and you bear the cost?
    Dr. Combs. Well, as I understand it, there are already 
grievance processes in place to deal with private sector 
entities of that nature. I was speaking to the public sector.
    Mr. Platts. Grievances within the typical court system?
    Dr. Combs. Within the systems that are laid out already 
within the Federal Government where there are some grievance 
systems already laid out for contractors that do not perform.
    Mr. Platts. So basically nothing new, kind of following the 
existing procedures in place?
    Dr. Combs. Correct.
    Mr. Platts. For disputes that exist. That does worry me a 
little bit in the sense of in some of the oversight hearings 
we've done where financial management systems at DOD, $100 
million spent, and I ask how much has been recouped and the 
answer is usually none that I know of but we'll check into it.
    In these areas it seems that when it comes to Federal 
Government getting its money back, it seems often to be a lot 
harder or less common than when it's two private companies that 
one or the other fails.
    Dr. Combs. I certainly appreciate your thoughts on that. 
We'll look at that and see if there are any different 
opportunities we could look at relative to doing something a 
little bit different.
    Mr. Platts. Thank you. In your written statement in talking 
about the current state of financial management, and we talked 
about the nine agencies that are FFMIA compliant, in our 
documentation there's only five that are deemed FFMIA compliant 
per the requirement that the auditor report--that an auditor 
finds they're in compliance, and that is only five agencies. So 
I'm wondering what the basis of OMB's assessment is for when an 
agency is FFMIA compliant.
    Dr. Combs. The FFMIA allows for both the auditor and the 
head of the agency to make FFMIA determinations and FFMIA 
specifically requires that the independent auditor report 
whether the agency financial systems comply with FFMIA. It also 
requires that the head of the agency make a separate 
determination based on the financial statement audit as well as 
any other information deemed relevant. And when we use that 
definition, we have Departments of Commerce, Education, HUD, 
Labor, State, EPA, National Science Foundation, OPM and the 
Social Security Administration as of fiscal year 2005 that were 
in substantial compliance with FFMIA.
    Mr. Platts. By that internal assessment the agency head, 
not by the auditor's determinations.
    Dr. Combs. Having been there, I can assure you that the 
agencies certainly look at that, the agency head looks at that, 
but the agency head, i.e., the secretary or the administrator 
of an agency does have the determination.
    Mr. Platts. Section 803 says FFMIA requires the auditor to 
report whether the reporting entity's financial management 
systems substantially comply. So what you're saying is that the 
auditors have independently said 5 of our 24 major agencies 
comply, 4 other agency heads have said well, we disagree with 
the auditors' opinion and we deem our agency to be in 
compliance. Does that kind of defeat the purpose of that 
outside audit so it's not your own in-house decision?
    Dr. Combs. I don't think it defeats that because, as I 
said, having been there, I know that is a heavy, heavy weighted 
part of an agency head's determination, but they do have the 
responsibility if there is other relevant information that they 
deem to be relevant to take that into consideration.
    Mr. Platts. It seems that if I were being audited, I would 
certainly want my auditor to know that other information in 
making their determination because I'd rather not have an 
auditor say to everybody you're not in compliance with the law. 
So I guess I give greater weight to the independent audit in 
assessing the financial.
    And that question goes to where we are. The fact even if 
we're at nine, less than half are FFMIA compliant, and the 
intent of that act was to improve the business processes across 
the Federal Government and we clearly have a ways to go if 15 
of our 24, even internally, are believed to be in 
noncompliance, if we use the independent audits, 19 of our 24 
are not. It's that foundation, our focus of getting to FFMIA 
compliance would probably help us moving forward on again a 
shared goal but just that we're not jumping ahead.
    Dr. Combs. No doubt. I share your concerns about compliance 
and we continue to work on that through our internal controls 
as well as we have not actually looked I don't believe at that 
implementation guidance on FFMIA since 2001. We're currently 
looking at that and we certainly will take your thoughts into 
consideration.
    Mr. Platts. And efforts like the regulations on internal 
control assessment and compliance, I mean, I agree, you have 
taken important steps toward that and that we not lose focus on 
that as we're looking at other aspects such as the line of 
business approach.
    Related to again that foundation is that governmentwide 
accounting code that you hope to get to by September 30th. Can 
you expand on what you expect to have or hope to have at that 
timeframe?
    Dr. Combs. By September 30th the plan, and a lot of the 
project management plan we hope to have in place; we certainly 
don't expect to have the governmentwide accounting code spelled 
out and the expectation is not that agencies are going to have 
to do anything by then. We expect it's going to take us a full 
6 months now to look at the project management plan for doing 
that.
    We feel like this is part of the standardization that we're 
both seeking and we feel like if we can just get a set of 
definitions and some common understandings about what the 
governmentwide code structure would look like, that will help 
us all in many, many different ways. I think the one thing that 
we are sure of is that we're doing an assessment now to 
determine exactly where each and every agency is at this 
particular moment and even standardizing their own internal 
accounting codes. And one of the things I think that you'll 
hear both from the public and private sector folks who deal 
with this is that if you're going to have a better financial 
management system, you have to have good data quality and it's 
got to be consistent. And the more we standardize, the better 
data quality we'll have and the more consistency we'll have.
    Consequently, setting up for the things we need to do with 
audits governmentwide later on and internal audits themselves 
and the first point of my vision that I articulated earlier 
related to making sure these systems talk to one another 
internally, this standardization will help us with that. But 
the September 30th date that we have put on ourselves here is 
for our own internal planning.
    Mr. Platts. So on the internal layout what you hope to 
achieve and then go to the departments and agencies and 
developing an actual code?
    Dr. Combs. They're actually helping with it. Part of the 
as-is status that we have is that one of the things we're going 
to ask all of the departments and agencies to share with us 
what their current accounting system permits. And I know both 
from my EPA experience and from my DOT experience and the 
stream of accounting code that we had in both of those places 
as we standardized it across the entire enterprise of EPA and 
across the entire enterprise of DOT, there were certain 
elements of that standard accounting code that needed to help 
us with our financial management information. That was set 
aside in the stream of accounting code and the standardized 
code. Then there were certain other elements that the agencies 
needed in order to do their own business management within 
their own individual agencies within the department. And I 
think we can accomplish something like that governmentwide.
    Mr. Platts. The reason for the kind of where you are and 
what you're hoping to have is again kind of that cart before 
the horse question, and you touched on in your answer about 
standardization being so important long term from the 
deficiency standpoint and things and I asked about the FFMIA 
compliance, and my understanding is by those outside auditors' 
opinions, since we only have five departments or agencies 
compliant with FFMIA, only five that are complying or using the 
standard general ledger as they're supposed to, so we have a 
long way to go to get compliance with a standard that's already 
out there.
    How are we going to add on a new standard or a new 
uniformity when we haven't yet achieved compliance? That's why 
it's kind of all wrapped together, those questions or those 
issues, to what comes first. And the existing law is FFMIA 
compliance. And if we keep focus on that, some of the things 
you're doing are about FFMIA compliance, internal controls 
especially, that will help us then get to maybe the next level, 
which is a governmentwide accounting code and COEs and 
consolidations of shared services.
    I guess a subtle or maybe not subtle reminder of the laws 
that Congress has already said are important should not be lost 
in the effort of new initiatives.
    Dr. Combs. Well, I can assure you, it will not be lost. We 
have monitored, since this administration began, the 
President's management agenda. That is one of the criteria that 
we monitor, always, quarterly; and for many of these 
departments and agencies we monitor it monthly. It is all in 
our high-priority checklist. I have in my notebook that I look 
at, every single day, which agencies are in compliance and 
which ones are not.
    Plus, it is transparent. There has to be a notation on 
everybody's part that says there is a disagreement between the 
auditor and the agency head, so that is not taken lightly. And 
there must be compelling evidence for an agency head to make 
that determination. So, one, it will not be lost. And, two, I 
don't consider this a new initiative. I consider this to be an 
ongoing attachment to what we are already doing in terms of 
standardization.
    Mr. Platts. And I certainly readily acknowledge here, and 
with my conversation with Clay Johnson about these issues, the 
efforts of the administration, the President's management 
agenda from day one, the first year; you know, that is it is 
important that we have and acknowledge that we have an 
administration that is focusing on substantive financial 
management reforms and improvements and staying with it. We are 
seeking to do so with you as a partner.
    Dr. Combs. I must say we truly appreciate the collaborative 
operations that we were able to work through together, because 
without the exposure and without the transparency that we both 
created, we would not be where we are today. So we thank you 
for that.
    Mr. Platts. And when we get to our second panel, I know one 
of the testimonies of at least one of the witnesses talks about 
that foundation, that internal control, and that kind of 
relates to FFMIA compliance; that all these feeder systems, if 
they are not working well, then we can migrate everybody 
wherever we want, but if the data coming in is unreliable and 
inaccurate, it doesn't matter where we migrate to, we still get 
the same outcome: bad information that can't be acted upon.
    So that brings us back to that core level of where we need 
to keep important focus as we look at strengthening the whole 
system, the whole political process.
    I am going to try to touch on a couple of other issues. 
What we will probably do, because it is my understanding, the 
remaining votes are in about an hour; is that right? Sometime 
after 5, or maybe sooner. And with the second panel, we will 
want to get to them, too. So we may ask you to followup some of 
the questions just in writing, that we may not get to, that we 
would like to have that clarification for us and for the public 
at large as far as all the players and partners in this effort.
    So now the tough thing is, where to go to, all the areas I 
want to cover.
    Why don't we talk about the issue of how agencies, in 
determining if they are going to be their own COE or migrate, 
one of the issues is going to be their ability to make the 
investment. And then that relates to their financial structure. 
And if it is an agency under compliance with the Economy Act 
versus franchise fund agency, there is certainly different 
abilities from their capital opportunity, year to year.
    How are you going to acknowledge that or deal with that as 
agencies make these assessments of what they can do or would 
like to do as far as keeping it in-house or having to migrate 
elsewhere?
    Dr. Combs. I will say that our ultimate goal for each of 
the COEs is that they should be in the best position possible 
to meet the business needs of their customers. And I think one 
of the things that we are continuing to look at right now is 
how to evaluate these different financing alternatives. And we 
look forward to working with you to see which is the best path 
forward.
    Mr. Platts. In the sense of how to fund them.
    Dr. Combs. Correct.
    Mr. Platts. Whether it is direct appropriations or 
revolving funds? That is something you are assessing now?
    Dr. Combs. Yes. We are looking at that right now, and we 
would welcome thoughts from you related to that; because, 
obviously, if you are in the private sector and you decide you 
want to invest and do some venture capital and become a private 
sector COE specializing in a certain area, and you have the 
capability of doing that already, you decide you just need a 
little bit more seed money to put into that, you can certainly 
do that.
    If you are in the public sector, it is a challenge for many 
of these, what might be very best practices in shared services, 
to come up with whether or not they are ready; and, if they are 
ready, maybe they just need some capital to help them get 
started to get on to enrich some of their current systems.
    Maybe they have to get some additional equipment in to be 
able to provide the service that somebody might want from them.
    Mr. Platts. How does an agency deal with that right now? I 
mean, because we have all the different types of financial 
arrangements out there. Yet they are all under the same 
requirement. On the IT side, you must do this; one or the 
other, you know, your own center or migrate; and then, even 
beyond that, for the broader picture you're going to have to 
make a factual determination of whether you can keep it or 
migrate.
    So when do you expect to resolve this issue? Because I 
would think for a department agency this is a huge issue for 
them, to know up front what our expectations and abilities are. 
Because if there is going to be a new source of funds that OMB 
is going to ask from Congress for this purpose and that we need 
to spend some more money so that we can create these centers 
and here is how much it is going to cost, that is a different 
scenario than if you are going to do it with what you have.
    Dr. Combs. Right. And that has not been our model thus far. 
For example, the Department of Transportation has a franchise 
fund. They are able to keep about 4 percent, I believe, of that 
in order to upgrade their equipment and do various things. And 
for the most part, that is probably a pretty good model right 
now.
    But when I said a moment ago that we were looking at what 
the other alternatives and other models are, we are not ready 
to speak yet to those other models.
    Mr. Platts. When do you think a final determination is 
going to be made that the departments and agencies know that we 
are going to advocate for you to become a franchise agency with 
the 4 percent, you know, fee collection or retention.
    Again, it seems like that is an issue that needs to be 
addressed up front for the departments and agencies.
    Dr. Combs. Well, one of the things that we have done thus 
far is the--it is my understanding when these were 
established--is that the agencies that were chosen to be a COE 
were worked within their own--their own legislation. They had 
their own legislation. And we just worked with that.
    I have not yet seen the need to come forward with something 
additional for that.
    Ms. Evans. I would like to add--and this is one of the 
alternatives that Dr. Combs is talking about--is that through 
the E-Gov Act we authorized an E-Gov fund. And one of the 
purposes of the E-Gov fund is to be able to do some--have some 
of the flexibilities and things we are talking about. The 
administration has gone forward, and we have asked, and it is 
included in the President's budget. But as we go forward and we 
determine exactly what needs to be done, such as capital 
improvements and those things for COEs, that is a flexibility 
that Congress has already given us through the E-Gov Act. So 
that is there.
    And we have to look through on a case-by-case basis. And 
Dr. Combs is right: Given the current appropriations of the 
COEs that we said had capabilities now, it was--the plan was to 
work within their current appropriations and then request any 
modifications that we may need going forward, working with the 
agencies and working with the Hill.
    Mr. Platts. That approach now, though, will create an 
inequity as far as agencies, departments, which are more likely 
to be able to be their own--versus those that have to migrate--
doesn't it, because their source of funds vary in what they 
have in-house?
    And that is kind of what I was after is how do you deal 
with the inequity between departments and agencies; what their 
vision is hey, we would like to be a COE, but we don't have the 
same funding source that they have. How do you deal with that? 
Or are you just thinking you don't; you deal with what you 
have, and if you can't do it, then you have to migrate?
    Dr. Combs. We are looking at the current authorities that 
are available to each one of the areas or agencies that would 
consider those--that as an option.
    And I would say to the extent that we find any competitive 
disadvantage, as you just talked about, we would want to work 
with those potential COEs or those COEs, if we find they are 
already there, to identify what potential options are out there 
for them. And we would certainly need to work with you in order 
to talk through that, before we do that.
    Mr. Platts. I guess that falls into that category of part 
of our hearing today is just trying, with you, to work through 
the kind of the gray area out there of how this is going to 
play out, so that, you know, you're able to give this clear 
delineation to departments and agencies, and our 
responsibilities of overseeing those same agencies; we know 
what is a fair expectation of them within these new efforts and 
this initiative.
    Let me touch on a couple of other quick questions, and then 
we need to move to our second panel. One of the challenges of 
the Federal Government has been getting full cost accounting 
and true cost of what we do. And we have not been very 
successful, I guess, I would say across the Federal Government.
    How can we in making the assessment that is part of the 
decisionmaking process, of moving, you know, migrating 
somewhere else, doing it in-house, or we don't have to become a 
COE or migrate, what we are already doing is the right thing, 
without full cost accounting being well embraced--maybe is the 
right term I am looking for--by the Federal Government, how do 
we make that factual determination today?
    Dr. Combs. Well, obviously, I share your concern that we 
need full cost accounting and we are continuing, as you know, 
to work toward that.
    But there are other ways that agencies today are capturing 
cost. And every year they have to submit their annual cost 
information through their exhibit 52s as part of circular A-11 
to Karen's office.
    And I think through the performance measurement work stream 
that we have, as part of our financial management line of 
business, we are continuing to figure out different ways that 
will help agencies to identify these costs and quality, as well 
as the timeliness and metrics, and I think that agencies have 
the potential to look at other pricing proposals of potential 
providers. They don't have to just depend on the cost 
information that they have within their own disposal.
    Mr. Platts. The more we get to that shared goal of full 
cost accounting, the more accurate any of these types of 
assessments are going to be, so the more emphasis we put there, 
again, will help us in coming back to that foundation approach, 
to have the best out of possible to make an assessment on this 
issue.
    In your written testimony, the Financial Services 
Integration Office did a cost analysis of what is expected 
here. Is that something we could have shared with us?
    Dr. Combs. Certainly. We are happy to share that original 
FMLOB business case with you.
    Mr. Platts. Great. Appreciate your doing that.
    Let me maybe just conclude with one final question. And the 
original intent of the CFO Act was really to take financial 
management kind of out of that, ``back room,'' and we're 
talking about the back room services here, and really put it in 
the front room; in fact, put it right where the secretary for 
that day-to-day strategic planning decisionmaking--you name it.
    Is there some concern or something you have thought of that 
you are, in moving it out in essence, offsite, that you are 
moving financial management to the CEO over here, not internal; 
that you are diminishing that level of importance that Congress 
intended with the CFO Account Act?
    Dr. Combs. No, sir. In fact, I would say that the more we 
can take the CFO and continue to keep the CFO in the boardroom, 
the better. And the way we do that is to solidify their seat at 
the table, the CFO's seat at the table, by adding value to what 
they do.
    And the more that they have an opportunity to give better 
data to their colleagues who are around the table with them, 
and to do better analysis for their colleagues around the 
table, and for the secretary and deputy secretaries in these 
departments, the better they are going to be at the seat at the 
table in the boardroom, not in the back room.
    So the more they can do shared services, which they 
obviously still--they have to spend a lot of time right now 
when they are in-house when they are doing heroic efforts to 
get the clean audit and to take care of some of those daily 
functions that add value right now--the more we can take that 
and move it to something that is truly excellent in financial 
management, the better the CFOs are going to be, because they 
are going to have more time to do the analysis and more time to 
do a normal CFO function.
    Mr. Platts. I share the assessment if the premise is that 
CFOs are getting that reliable good information in a timely 
basis. My reason for the question is when we had Gwen Sykes 
with NASA here a year and a half or so ago, and we talked about 
her oversight of the 10 centers, and the fact that CFOs in 
those 10 centers didn't answer to her, but she was responsible 
for giving, you know, the NASA, the administrator, the reliable 
information, being responsible to make these, but she had no 
control over those center CFOs, they didn't answer to her. Her 
ability to tell them, ``I need it today, I need this,'' is a 
lot different than today, where they have restructured 
appropriately so she has more direct control.
    So my worry is if it is over here, that COE is 
contractually responsive to that CFO in the customer agency or 
department, but as far as direct hiring, firing, disciplining 
of whatever may be, that CFO doesn't have that direct control 
over the personnel that he is relying on the information from.
    And so if they do the job well, it is accurate, it is 
excellent information, but he gives up some of his authority or 
control over the people he is relying on providing the 
information. And that seems to be going more toward what NASA 
used to be than what we have tried to make NASA become. That is 
the reason for the question.
    Dr. Combs. Well, thank you for the question. If I thought 
that were the case, I would definitely not be an advocate for 
it. But I don't think that is the case.
    In fact, I think that it will give the CFO even greater 
control because they, like today, they're responsible for the 
information, period. And if we do the contractual agreements 
correctly, and the CFOs truly know what they are getting, they 
will actually do better.
    Mr. Platts. I think the key there is the terms of those 
contractual agreements with the host COE, whether it be a 
public or private, maybe even especially if it is a private, of 
how responsive they need to be to that CFO, and to those terms.
    One final area that I meant to ask about when we were 
talking earlier about the FFMIA compliance in general is, Ms. 
Evans, I think you referenced your due diligence review to 
become a COE and that review process.
    It is my understanding of the due diligence review, GSA 
would not have met that in the past with an audit; 2005 audit 
not being a clean audit, and 2004 being rescinded, a qualified 
audit being rescinded. If that was the case when they first 
were certified, they wouldn't have passed the due diligence 
review.
    So what is their status today? Are they still deemed a COE, 
despite the 2005 audit findings and the rescission of the 
qualified 2004?
    Ms. Evans. And I would defer this particular question to 
Dr. Combs because----
    Dr. Combs. The answer is yes. GSA will continue to be 
recognized as a CFO.
    We expect as potential customers want to go to GSA, that 
they would closely evaluate whether or not they are losing 
their clean audit opinion, would affect them or would give them 
any additional risk by going to GSA.
    We believe that GSA's reasons for losing their clean audit 
was based on not anything related to their shared services 
arrangements with their customers, but other problems that are 
isolated in other program areas.
    And so we believe that agencies looking to migrate to a 
shared service provider, they need to certainly understand 
whether their findings could impact their own audit. But at 
this point, we don't believe that is the case.
    Mr. Platts. So having a clean opinion is not a requirement 
to become a COE?
    Dr. Combs. It was a requirement in the original.
    Mr. Platts. So, from here on out, any agency that wants to 
be a COE in the future does not have to have a clean opinion to 
become one?
    Dr. Combs. Yes. Yes. They do have to have a clean opinion.
    Mr. Platts. I am not sure, then, how you retain your status 
as COE if you no longer have clean opinions.
    Dr. Combs. The entity itself should have a clean opinion. 
For example, the Bureau of Public Debt does a great, great job, 
and everybody--I think some of your staff even visited with 
them. We are proud of the job that they do.
    They are part of the Department of the Treasury, which of 
course does have a clean audit. They have a material weakness, 
for example, but it doesn't relate to the Bureau of Public 
Debt, it relates to another entity.
    So, yes, departments that are considering a COE should look 
at whether or not the entity, the COE, has a clean audit 
opinion.
    If that entity does, then they need to take that into 
consideration. If it doesn't, they need to take that into 
consideration.
    If it is a case like GSA where they have lost their clean 
opinion, we wouldn't just take all those customers out of there 
because they lost their clean opinion. That would not be a 
practical approach.
    Mr. Platts. When would you take the customers? What has 
happened, or has to happen, for somebody to lose their COE 
status so that their customers have to migrate somewhere else?
    Dr. Combs. The customers would need to come to us and say, 
``We are extremely unhappy,'' to begin with.
    Mr. Platts. So it is not a factual determination, you are 
no longer a COE, so now you have to go somewhere else? Because 
it seems that is what it is up front. Maybe the customer 
doesn't get to decide who is a COE, OMB does. But then whether 
they stay with them as a COE is up to the customer. It seems 
like a different standard.
    Dr. Combs. Well, the customers are going to look at that 
performance of that COE based on the services that they are 
getting. And if they have sustained poor performance, I expect 
that in the daily, monthly, weekly meetings that I have with 
the COE recipients, I would hear about that. And we would 
certainly need to address that.
    But the sustained poor performance is probably the key 
factor that would cause customers to want to leave.
    Ms. Evans. And I would like to add, I want to go all the 
way back. When we made the determination based on the due 
diligence list, I want to stress again it is they appear to 
have the capability to provide the service.
    So everything that Dr. Combs is talking about now is their 
actual performance. And so every--all the decisions that the 
agencies have to make, have to be based on risk and their 
ability to address that risk, as Dr. Combs has laid out.
    So even though you have the designation, that you appear to 
have the capability to do it, that is why we are stressing and 
Dr. Combs has talked specifically about the competition piece 
and structuring what agencies need to have in order to meet the 
financial management improvements and get a good clean audit.
    So we are relying on the agencies also, just like they 
would any other procurement, to be looking at what are all the 
risk factors as I am planning and going forward on this. And so 
that is--clearly, as you have highlighted, that is a risk.
    Mr. Platts. But their requirement is to migrate to a COE, 
that they--I mean, that is the requirement that is going to be 
placed on them. Mandatory at some part, and perhaps mandatory 
or at least possible on other parts of the effort.
    And so they don't have a say in that determination. And 
once they are there--so, if I am reading correctly, when they 
first go to COE, you are going to say, this entity is 
certified, so if you go with them you're complying with this 
requirement that you are either a COE or migrate to a COE, 
because they have been certified; this providing agency has 
been certified. They do go there.
    If that agency does things that takes them out of a COE 
status, will they still have the choice to say, well, for us we 
think it is still working for us, so we can stay here even 
though they are no longer deemed a COE? That is a question I am 
not sure there is an answer to right now.
    Dr. Combs. I think you're right. There is no answer to that 
right now.
    Mr. Platts. I think the department's and agencies need to 
know that answer before they are expected to migrate anywhere. 
Because if I am a guy at agency A and I say, well, we don't 
want to make the investment to become a COE, and the Bureau of 
Public Debt is doing a great job so we are going to them, but 
if next year they are deemed to no longer be a COE, I need to 
know what my choices are, what the consequences for me are in 
deciding to go there. You know, am I going to have to spend 
money? Are they going to spend money? Those are the things you 
need to know up front.
    Ms. Evans. We have this issue on all of the E-Government 
initiatives where we cross-service on all the E-Government 
initiatives. I am going to tale it up a level, maybe a little 
higher than just financial management.
    The issue that you're outlining right now is a major risk 
area that we have with all of the 25 initiatives in all the 
lines of business.
    And so we have implementation plans that we work through 
with each of the agencies, not just on this initiative but on 
all of them, because of what exactly you are saying. Like we 
have based on like E-Travel, it is when we go and we do that 
competition and we awarded who the travel providers are, the 
assumption is everybody is going to do their job. And the 
agencies had plans to migrate to those travel services because 
of the policies we had in place.
    That is a good initiative to share, where we have had a few 
of the service providers did not do what they said that they 
were going to do. So we had to specifically go back and work 
with those agencies to work with what those migration plans 
are, what the effect of that is, how that addresses the 
governmentwide initiative from a whole, how to mitigate that 
risk with that agency because they are depending on those 
services. All of these agencies are depending on these cross-
services across the board. So that--I don't disagree with you, 
that is a big risk on the cross-agency governmentwide 
initiatives.
    Mr. Platts. I think whether it is travel, financial 
management, whatever it would be, those answers should, as best 
possible, be known up front. If the provider you go to fails, 
is no longer a COE, here are the consequences, your options; 
and whether you have the option of staying, you know, because 
they are serving you well, and you can show that, or you don't 
have the option, that goes to that just knowledge based up 
front.
    And the reason, you know, in the financial report for GSA, 
why I asked is, the November 12 Report of Independent Auditors 
on Internal Control noticed significant weaknesses in GSA's 
financial management system surrounding processes and controls 
relating to budgetary resources arising from the primary GSA 
service of customer agency order processing. Further down it 
says, weaknesses cited in the past included that GSA's 
financial management systems and feeder systems were not 
configured to support budgetary financial reporting.
    That sounds like my read on that, and as a layperson I 
qualify, that there is financial management problems at GSA 
that I would think relate to whether they are a center of 
excellence for financial management as a financial management 
line of business.
    So, and the fact that they no longer have a clean opinion 
and the 2004 was rescinded, seems that this goes to financial 
management at this financial management COE.
    Dr. Combs. I think your concern I share. But the other 
mitigating circumstance here revolves around the actions that 
we take at OMB for any agency that has even any identified 
material weakness.
    And one of the things we do is we immediately put them on a 
corrective action path and a corrective action plan.
    And that is where GSA is right now. And we are monitoring 
that very, very closely.
    And based on the corrective action plan, they are held 
accountable for making a lot of corrections and resolving the 
problems, both through the President's management agenda and 
through other work that we have.
    And as I said, if we have customers of theirs that do not 
believe they are getting the kind of service they feel like 
they deserve and the excellent service that they think they are 
paying for, then we will definitely look at that. But thus far, 
that has not happened.
    Mr. Platts. As more and more agencies and departments 
migrate to COEs, this is going to be an issue that is going to 
be more likely occurring. All the more why I think it is 
important to address now if an agency is a COE, everybody 
migrated to them, their clean opinions are rescinded, in their 
area especially of financial management, so now they have a 
corrective action plan in place. What does it mean long term, 
you know, if you are a customer agency, you have the right to 
go somewhere else that does have that clean opinion, like the 
Bureau of Public Debt, and the host COE has to pay for that.
    Those are the type questions I think you really want to 
work out up front, not to when you get--not just when you have 
a few COEs but many, or many agencies going to those COEs.
    Dr. Combs. And I think that is excellent forward-looking, 
because right now, obviously, we don't have that many different 
choices. But we will eventually, both in the private and public 
sector.
    Mr. Platts. And even if it is 10 instead of 4, or you are 
going to have many more agencies migrating. And that is the 
real--where that migrating agency has that answer, more 
importantly than the actual COE has the answer. And that might 
be a good place where we stop, because it really is the purpose 
of today's hearing and the ongoing dialog is thinking through 
all those scenarios of what is expected of these departments, 
agencies. What happens if these scenarios play out from an 
oversight, you know, what are we going to look to in providing 
our oversight, fulfilling our responsibilities, the 
expectations of these agencies?
    So I appreciate the exchange and very much the good-faith 
effort of achieving this very worthy goal, which is that 
economy of scales. Whether it is public, private, this is 
obviously something we want to be pursuing and especially when 
it is taxpayer funds.
    So we look forward to continuing to work with you, Dr. 
Combs and Ms. Evans, with your efforts at the committee level, 
members and staff; and ultimately, short term and long term, 
have success in this important initiative.
    Thank you for your testimony.
    Dr. Combs. Thank you. And we appreciate your help and the 
help of your staff.
    Thank you.
    Mr. Platts. We will take maybe a 2-minute recess while we 
reset the second panel, and hopefully we will not have that 
vote board go off in the meantime.
    [Recess.]
    Mr. Platts. OK, we will reconvene the hearing and 
appreciate our second panel's patience as we proceeded with Dr. 
Combs and Ms. Evans, and again are very grateful for your 
participation, your written testimonies that you have provided, 
as well as your being here for testimony today and Q and A.
    First thing we will do is have you all stand and be sworn 
in and then we will get into statements and questions.
    OK, if you raise your right hands.
    [Witnesses sworn.]
    Mr. Platts. I think what we will do is just go down the 
line: Mr. Kull, Mr. Marshall, Mr. Williams, and we have 5 
minutes. I would like to say take more time if you need. My 
only worry is I think getting to the questions will be helpful, 
and we have no idea when the votes are coming. So we have been 
trying to get an answer, but they have not been very 
forthcoming. But we will do the best we can. But we wanted to 
also allow each of you to have that opportunity to capture the 
sentiments of your written statement.
    So, Mr. Kull, if you would like to begin.

  STATEMENTS OF JOSEPH KULL, PRICEWATERHOUSECOOPERS LLP; JOHN 
MARSHALL, VICE PRESIDENT, CGI FEDERAL; AND CLIFTON A. WILLIAMS, 
                  PARTNER, GRANT THORNTON LLP

                    STATEMENT OF JOSEPH KULL

    Mr. Kull. Thank you, Mr. Chairman. I appreciate the 
opportunity to comment on OMB's Financial Management Line of 
Business Initiative. I will summarize my written testimony and 
ask that it be inserted in full into the record.
    Currently I am a director in the Washington Federal 
Practice of PriceWaterhouseCoopers. My comments are based on 
almost 32 years with the Federal Government, including 4 at 
OMB, 10 years as a CFO, and over 20 years as a budget director. 
The views I express will be my own and not necessarily 
represent the views of PWC.
    The FMLOB Initiative proposes to improve the cost, quality, 
and performance of financial systems by leveraging shared 
service solutions and other governmentwide reforms that enable 
efficiencies in Federal financial management.
    It is hard to argue with an idea that embraces those 
objectives, and I believe it will and should happen. But it 
will take time, leadership and vision.
    So the question is: How best to manage the process for 
success?
    First let me comment on the current state of Federal 
financial management, which I believe is good and getting 
better. Every year agencies are improving the quality and 
timeliness of their information, providing managers with 
realtime data so they can run their programs better. This is 
remarkable progress and the Federal financial management 
community should be proud of its contributions to achieve this 
level of performance.
    Of course, there is still plenty of room for improvement. 
Agencies need to resolve major issues so they can get and 
sustain unqualified or clean opinions. The key to that effort 
is the need to complete efforts to improve their internal 
controls. This wider effort will focus attention and resources, 
people and dollars, on building a strong controlled 
environment. This should be the highest priority. Our core 
systems are only as good as the data flowing into them from the 
feeder and subsystems. Agencies need to be sure that the feeder 
and subsystem business processes and controls are working 
effectively before moving to a shared services environment. The 
private sector can play important roles in these efforts. Many 
firms can provide the accounting, auditing, software, hardware, 
and consulting services that will be necessary to help agencies 
improve as they move toward the new environment.
    Many firms also have knowledgeable staff and experience in 
similar private sector efforts and can leverage that knowledge 
and experience to ensure agencies benefit from best practices. 
There are valuable lessons to be learned from these 
experiences, including developing appropriate performance 
metrics, drafting enforceable service level agreements, 
transition migration issues, and strategies in developing 
backup and continuity of operation plans, just to name just a 
few.
    Moving to a shared service environment will also have audit 
implications for the agencies serviced as well as the service 
provider. Under the revised A-123, agencies must obtain an 
understanding of the controls of the service provider, as well 
as evidence that such controls are operating effectively.
    There will also be an increased need for cooperation and 
communication between the auditors, management, and the service 
providers to ensure that requests for information by the 
auditor are met adequately and on time.
    We should not assume that moving to a shared services 
environment will magically standardize business processes in 
core accounting systems. Transformation on this scale is 
difficult and tedious, made more so by the fact we are dealing 
with the largest, most complicated business enterprise in the 
world. It would be like trying to standardize information for 
the 24 largest corporations in the country. The financial and 
performance data needed to run Exxon or Wal-Mart will not be 
the same data necessary to run Microsoft or Bank of America.
    Even good proprietary accounting systems must deal with the 
fact that the principal financial driver for most agencies is 
the budget. For many agencies, compliance with budgetary 
accounting requirements and appropriation law is a higher 
priority than GAAP accounting.
    In fact, my experience as a CFO was that most program 
people were very happy to let me worry about the GAAP 
financials as long as my systems gave them the reliable and 
timely budget information they needed to run their programs.
    There is another way to use and reuse the disparate data 
without wholesale system changes, and that is with the 
standards-based recording through XBRL, which stands for 
Extensible Business Reporting Language. XBRL is a standardized 
way to tag data, similar to bar coding. It does not change the 
current USSGL and Federal GAAP standards. It simply captures 
those standards in electronic or digital format that 
applications and systems can process and understand.
    That data element, wherever and whenever it is used, 
retains that tag, allowing it to be permanently identified and 
remembered by any application or system. It is a viable 
alternative that should be looked at.
    Finally, and perhaps most importantly, the financial 
management line of business represents a major change in the 
way many agencies do business. Such change takes time, 
commitment and leadership.
    Many system projects fail or falter because we have 
inadequate resources to train, educate, and communicate with 
our people throughout the process. Whether creating new systems 
or improving old ones, people issues are often far more 
difficult to overcome than the technological ones. In the end, 
people can make a bad system work and a good system fail.
    Leadership and commitment are absolutely critical for 
success. In 1990, the National Science Foundation set a goal of 
being entirely paperless in 5 years. This was visionary as well 
as ambitious, considering the Internet didn't even exist at the 
time. Each NSF director--and there were about four of them in 
the nineties--subscribed to this vision and kept it as a 
priority. The target date kept moving, largely due to 
technology changes and resource constraints, but NSF management 
remained flexible and focused. Today, NSF is virtually 
paperless.
    Vision, leadership, and commitment made this effort 
successful. Decisions about business process, reporting 
programs, and technology were made in the context of working in 
a paperless environment. Equally important was remaining able 
to adapt to changes. It was by no means a perfect process, but 
it was more successful than most ventures like it.
    Shared services, centers of excellence, and standardization 
are good ideas that can work with adequate time, leadership, 
sustained commitment and excellent people. The government has 
an abundance of all four if it chooses to use them. Thank you 
Mr. Chairman.
    Mr. Platts. Thank you, Mr. Kull.
    [The prepared statement of Mr. Kull follows:]

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    Mr. Platts. Mr. Marshall.

                   STATEMENT OF JOHN MARSHALL

    Mr. Marshall. Thank you, Mr. Chairman, CGI Federal 
sincerely appreciates the opportunity to appear today. You have 
asked for our views on the current state of financial 
management, the Federal Government, and the Line of Business 
Initiatives.
    My written testimony has been submitted for the record and 
I will quickly summarize it here.
    CGI is vitally interested in these matters. They are 
central to our business. We have spent 30 years implementing 
Federal financial systems in more than 500 of the largest, most 
complex organizations in the world. This includes more than 20 
years' experience building, implementing, and maintaining 
Federal financial management systems and 34 years in delivering 
managed IT services to industry and government.
    CGI now offers these services through our CGI Center of 
Excellence. We are currently migrating the General Services 
Administration and the Corporation for National and Community 
Service to our Center of Excellence, with other Federal 
customers to follow.
    We also partner with GSA and the National Business Center 
of the Department of the Interior to deliver services through 
their Federal COEs. Based on our experience, we have four 
central observations for this hearing.
    First, we support the line of business and center-of-
excellence concept. The FMLOB and COEs, if structured properly, 
hold promise for achieving the next stage of evolution and 
improvement in financial management.
    The government has evolved from establishing financial 
systems to certifying and implementing modern systems to 
achieve unqualified audit opinions.
    A few agencies have tied financial and program information 
together for strategic decisionmaking. These successes deserve 
recognition, but there is still very much left to do.
    In many agencies, back office administrative functions are 
underresourced and lack the capabilities they need to meet 
rising expectations for financial performance and 
accountability.
    The LOB Initiative can eliminate wasteful duplication, 
establish world-class centers of excellence, and even enhance 
the Federal financial management work force.
    As low-value operational workload is shifted to a COE, 
agency resources and jobs can be concentrated on the remaining 
higher-value analytical functions of financial management that 
directly contribute to mission performance. This opportunity is 
a win-win for the Federal work force and the taxpayer. 
Leveraging government investments to achieve these outcomes 
makes good business sense. But the current operational model 
must change to support this evolution, and that change is very 
challenging.
    To better understand the challenges to LOB success, CGI 
recently hosted a series of forums for Federal technology and 
financial executives. Two of these forums benefited from the 
personal participation of OMB Comptroller Dr. Linda Combs. And 
we thank her for bringing her important insights and leadership 
to these discussions.
    Listening to Federal CFOs and CIOs in these forums, we have 
identified four policy and execution recommendations.
    No. 1, OMB should extend its FMLOB vision to a blueprint 
for the end state from an agency's perspective. This would help 
agencies visualize how they can apply FMLOB services in their 
mission context. CGI has developed a potential vision for this 
end state and welcomes the opportunity to share it and discuss 
it with Congress, OMB, and FSIO.
    Second, there is an immediate need to establish a level 
competitive playing field for centers of excellence.
    As you have discussed with the earlier panel, public COEs 
are not operating under the same rules. Legal constraints 
prevent them from taking basic business actions, such as 
creating financial reserves to refresh their technology, 
conduct marketing and make other improvements to their 
services.
    Third, the competitive playing field is not level for 
public COEs and private sector COEs. As one example, private 
COEs must account for all their costs in a bid to protect 
against liabilities that affect shareholders. It is unclear 
whether or not public COEs fully account for all their costs, 
such as items in direct departmental overhead appropriations, 
in their bids.
    Fourth, increased process and data standardization is 
required. CFOs and CIOs cited standardization as critical to 
reducing the complexity and cost of integrating feeder systems 
with their financial systems. We don't recommend a drawn-out 
standards creation process, but useful standardization can be 
done and approached iteratively.
    In the 1990's, CGI and other industry representatives sat 
down with Federal experts to develop the JFMIP financial 
certification program. That effort has evolved to set the bar 
for software quality that enables Federal financial management 
compliance.
    We believe a similar degree of formal collaboration between 
industry and Federal policymakers can help address LOB process 
and data standardization issues.
    Our second overall observation is that success of the LOB 
initiative ultimately depends on agency-level leadership and 
execution. In terms of agency readiness for using COEs, the 
biggest implementation challenge is managing the required 
change in mind set, culture, and day-to-day operations.
    Agencies will have to transform from how they manage 
operations today to how they would manage in a whole new and 
different environment, with a partnership with a shared service 
provider, a COE. They will have to shift their orientation from 
buying software to buying a fully provisioned financial 
management service.
    In this new business model, agencies must view COEs as 
extensions of their operations and their enterprise 
architecture, bound and managed by an SLA.
    By managing a COE-shared service as an extension of other 
architectures, agencies mitigate the audit implications of 
migrating to a COE. The CFO Council's implementation guide 
accounts for necessary procedures to ensure proper internal 
controls and reduce audit exposure of using a shared service 
provider. If these procedures are combined with a strong 
governance model, agencies using COEs can retain control and 
maintain full compliance with Federal audit requirements.
    In addition, as you discussed, Congress might consider 
facilitating change by establishing new funding models for 
public COEs.
    In terms of agency readiness to become COEs, the quality 
bar should be set very high.
    We see five core critical competencies that COEs must 
possess. The first is competency in large-scale business and IT 
transformation backed up by many years of experience and 
successful engagements.
    The second, COE professionals must be experts at linking 
financial management with technology and able to configure 
daily financial operations to enforce strong internal controls, 
integrate external systems and roll up data for reporting.
    Third, COEs should offer tested best practices that are 
continuously improved to leverage proven standard business 
processes and technology.
    These should extend beyond IT and application hosting to 
include turnkey business process services offering efficiencies 
and process improvements.
    Fourth, COEs must be competent IT managers with proven 
track records in applying technology across a wide range of 
Federal programs and organizations.
    Fifth and last, they should offer a framework for 
delivering standardized services in a manner that acknowledges 
inherent differences in agency missions and embraces agencies' 
variety by offering flexible service options and 
configurations.
    Our third overall observation is the private sector has the 
capabilities to deliver on these promising concepts.
    IT firms like ours have invested substantially in the 
expertise, standard processes, and proven technologies to 
support for formal back office functions like financial 
management. The government can leverage the private sector to 
deliver its back office efficiently, under enforceable service 
level agreements, so that Federal agencies can focus on their 
core missions. The key challenge is demonstrating agency value 
while managing cultural change. It works in the commercial 
sector, and it holds great promise for the Federal Government, 
if committed leadership, discipline and thoughtful execution 
are present.
    Our fourth and final overall observation is that the 
private sector should actively engage in resolving these 
challenges to realize the full potential of the FMLOB and COEs.
    The Federal financial management community is blessed with 
extensive expertise and robust participation from the private 
sector. The industry stands ready to help evaluate improvement 
opportunities and to develop creative solutions. Government can 
benefit greatly by establishing a formal mechanism for 
incorporating industry as an active advisory participant in LOB 
policy development.
    The President's management agenda emphasizes that 
government should focus on its core competencies and leverage 
private sector strengths to provide services outside its core 
competencies. The FMLOB and COE concepts, if structured 
appropriately, can do this. COEs are an opportunity for 
government to purchase services, driven by expected financial 
management outcomes, from service providers that can be held 
accountable for quality service delivery.
    COEs with large-scale IT, business transformation and 
financial management expertise can reduce government cost and 
risk. However, without the active support of top-level agency 
leadership and diligent execution fundamentals of managing 
tranformational change at the agency level, the FMLOB will fall 
short of its promise.
    We support OMB and the committee in your work and would 
like to offer more input through a formal mechanism for 
industry participation in the ongoing LOB effort. We can help 
bridge our agency customer perspectives with governmentwide 
policy perspectives to make the next stage of financial 
management evolution a success.
    Thanks again for the opportunity to testify today.
    CGI holds the work of the subcommittee, OMB, and the FMLOB 
Initiative in the highest regard. We share your deep commitment 
to improving Federal financial management and ensuring the 
confidence that true accountability brings to American 
citizens. It is a privilege to work with you toward these ends.
    Mr. Platts. Thank you, Mr. Marshall.
    [The prepared statement of Mr. Marshall follows:]

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    Mr. Platts. Mr. Williams.

                STATEMENT OF CLIFTON A. WILLIAMS

    Mr. Williams. Chairman Platts, thank you for the 
opportunity to testify about OMB's Financial Management Line of 
Business Initiative. My testimony source includes interviews 
with Federal CFOs and other financial managers done as part of 
an annual CFO survey conducted by Grant Thornton LLP on behalf 
of the Association of Government Accountants.
    The AGA is an organization of accountability professionals 
dedicated to the enhancement of public financial management. 
Among other education-related activities, AGA sponsors 
professional development for government financial management 
personnel, and administers the certified Government Financial 
Manager [CGFM] program.
    Grant Thornton is an accounting and business advisory 
services firm headquartered in Chicago, IL. Our global public 
sector practice is based in Alexandria, VA and provides 
financial, performance management, and systems solutions to 
governments and other international organizations.
    The 2006 CFO survey includes questions about the Financial 
Management Line of Business [FMLOB]. This year's survey is 
still in progress, with the completed results due in June. 
Today, I report on 40 interviews completed by early March of 
this year. We guaranteed anonymity to our survey participants, 
which encourages their candor.
    I can summarize the findings of the survey related to FMLOB 
in one sentence: Most Federal financial managers that we 
interviewed favor the concept of the FMLOB. But they are 
concerned about how the initiative will be executed. For 
example, survey participants pointed out that the OMB Financial 
Management Line of Business and Centers of Excellence concepts 
are not new. Center of Excellence refers to shared service 
providers for the Federal Government. One example would be the 
Department of Agriculture's National Finance Center's work 
related to payroll processing for other agencies. The NFC has 
been a successful shared-services organization for over 23 
years.
    Indeed, the FMLOB Center of Excellence is part of a 
broader, older trend of transferring routine infrastructure and 
administrative activities to a shared-services provider.
    Almost no survey respondent opposed the concept of shared 
services, just as long as the service quality is good and it's 
reasonably priced. Perhaps the only difficulty respondents had 
in understanding the Centers of Excellence concept was the 
scope and range of services to be provided by the centers. Some 
respondents want more time to consider the option of becoming a 
Center of Excellence or transferring financial activities to a 
center. They say they have not had enough time to study the 
pros and cons in general and their internal investment 
equation. In addition, they want more guidance from OMB, such 
as better definitions and the services to be provided. 
Respondents were aware that OMB intends to provide additional 
guidance in the near term. Some interviewees thought pressure 
brought by the initiative is good because it accelerates 
positive trends. These include consolidating information 
systems, reducing cost, increasing standardization and 
benchmarking their systems and operations. All want a fair and 
honest comparison done before agreeing to a Center of 
Excellence arrangement.
    The respondents identified specific issues that must be 
addressed for the concept to proceed; capital funding; lack of 
true competition between public entities versus private sector 
versus public-private consortia; the ability to fairly assess 
the bids and proposals from the just mentioned types of 
competitions; developing service quality measures and 
performance standards; and establishing governance structures 
for the relationship between the parties involved. The 
structures need to give customers a voice in a provider's 
operations. And, last, where will the money come from for 
transitioning services and data?
    There should be no negative audit implications for a 
Federal agency that transitions to a shared-services provider. 
This means that a Center of Excellence provider should comply 
with regulations for information systems and internal controls 
so that their customer agencies can rely on their controls for 
their own financial statement audit purposes. However, several 
respondents said that Centers of Excellence are not yet in 
compliance with these rules nor will they in the near term.
    You asked about the private sector's role in shared 
services. Many respondents said that the private sector will 
continue to supply much of the support and information 
technology solutions used in public sector shared services. 
Private companies are better able than Federal entities to 
obtain funds for capital investments in new technology. Also, 
the private sector has more experience in managing technologies 
and processes of shared services. Most survey respondents who 
answered this question also said that they prefer public-
private joint partnering over private-sector-only or public-
sector-only Centers of Excellence.
    To conclude, financial leaders in our survey like the idea 
of the FMLOB initiative but are concerned with its 
implementation. Sound execution will depend on the following 
factors: The ability to develop standard financial management 
process throughout government; sound governance structures and 
agreements between shared-services providers and their 
customers; effective change management, to ease the transition 
to a new way of doing some financial management operations; 
excellent performance management, including service level 
agreements and performance measures; good management of 
customer relations and the technology and processes involved.
    Thank you for the opportunity to testify. I would 
appreciate your inserting my statement in the record. I will be 
glad to answer questions.
    [The prepared statement of Mr. Williams follows:]

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    Mr. Platts. Thank you for your testimony, and the 
information is included in the record. In your written 
testimony and all three of your testimony here today is the 
general appreciation for the benefits of this type of 
initiative but a clear focus on a lot of the unanswered 
questions. That, as you heard, was a big part of our discussion 
with Dr. Combs and Ms. Evans.
    One of the questions I asked, which the answer was clearly 
not definitive, that there is no timeframe. That seems contrary 
to the message of the President's budget. And then in Dr. 
Combs' December memo that OMB has instituted a policy that 
agencies seeking to modernize their financial system must 
either be designated a public COE or must migrate to a COE. 
Those statements now, I mean, not over the next 10 years, they 
didn't share a timeframe of when they think this has to happen, 
but based on those statements and the feedback we get from 
within the departments and agencies, there is a belief out 
there that it is really now that they need to be working toward 
being a COE or looking to migrate.
    Is that read an accurate one in your interactions with 
CFOs, CIOs throughout the Federal Government? Maybe 
specifically with your survey results, is that this is 
something they are expected to be doing now?
    Mr. Williams. Sir, I would tell you that almost every 
respondent in our survey would tell you that they know they 
need to be positioning for the Center of Excellence initiative. 
They absolutely feel that way.
    Mr. Platts. Any contrary belief?
    Mr. Kull. I think part of the issue is that there is no end 
game to look at here in terms of where am I going to be in 
2010, 2012. And if people were to have a focus on a particular 
place or level of performance, I think they would be able to 
manage toward that in a more coherent way. Instead of looking 
at it step by step, looking at the vision and working backward.
    Mr. Platts. Mr. Marshall, in your written testimony, you 
kind of capture where OMB has laid out a high level mission or 
view, but to that frontline financial manager, what does it 
mean to me today to get to that high level view?
    Mr. Kull. It gets to the cultural issue, if people 
understand what's driving the behavior and the organization 
because they all see the same place they have to be, then there 
is more of an understanding of how to get along, how to work 
with the rest of the team in order to get there.
    Mr. Marshall. We've had discussions with Dr. Combs and her 
staff about what is the mission, what is the end game, and 
we've had our own takes on what that ought to be. I think what 
Dr. Combs said today is starting to spell it out a little more 
clearly than it has been before, but we think there still is an 
opportunity to really present a bold vision of a business 
architecture that enables agencies to focus their resources on 
strategic decisionmaking and core mission delivery. Then LOBs 
like finance and the others that have been cued up can be 
managed in a consolidated shared service environment that is 
driven by the Federal enterprise architecture. There's a lot of 
good work that's going on, and it really gives those agencies 
that ability to focus on the mission and do what's critical.
    Mr. Platts. As they try to get to that point where they can 
focus on their critical mission and allow others' expertise to 
help them in day-to-day management, one of the items touched 
on, Mr. Kull, in your testimony about the governmentwide 
standardization and specifically about standards-based 
reporting as another option, and in your testimony, you say in 
moving forward that one of the things that should be looked at 
is this data standardization to allow the applications to come 
together.
    Is that something that you think, in your opinion, OMB is 
looking at as an alternative at least in the short term? Is 
that what's going to the governmentwide accounting code, along 
those lines? Do you see something different?
    Mr. Kull. I think they're fairly consistent. We've been 
talking to OMB, as I'm sure other people have, about the 
potential for XBRL. It's becoming more and more recognized as a 
possibility for using information; by tagging it once and using 
it over and over again, it's permanently tagged, permanently 
recognized. Works like bar coding. It forces the discipline 
that's been lacking over the many years of getting standards in 
place and then using them. It takes those standards and makes 
them digital so that if everyone is able to employ that, then 
you can have data that's coming from different systems but that 
can be read by virtually any system.
    So I think it's something that should be looked at, and I 
think they are looking at it. I think, like most people, it's a 
new idea and so getting a new idea out there and testing it is 
very risky and sometimes people are hesitant to step forward.
    Mr. Platts. On the specific issue of governmentwide 
accounting code, and Dr. Combs talked about the September 30th 
deadline that they've set out there as they see more as 
internal--what's your read on the feasibility on what can we 
have in 6 months?
    Mr. Kull. It was interesting because I think today she 
mentioned something about that they would have a plan in place. 
We do a lot of planning in the government. Having worked there 
32 years, I'd rather see a phase where perhaps certain 
functions or activities are targeted for coding generation, if 
that's what it is, and we start actually doing it to see in 
fact if it can work, if we can get people to the table to agree 
on these standards.
    If we pick certain areas and we start to build on a success 
and a framework, we may be actually able to move this along.
    Mr. Platts. My read was the same, that it wasn't actually 
having----
    Mr. Kull. There was no end date in terms of when we would 
actually have a code.
    Mr. Platts. That we'll have a plan how to move forward in 
achieving a code.
    Mr. Kull. I'm sure we will have a plan by September 30th, 
if that's the case. But there are other things I think could be 
looked at in the interim.
    Mr. Platts. We touched in the first panel also on the lack 
of FFMIA compliance, that cart before the horse, that if we are 
doing better there, that will make everything else a lot 
easier.
    I guess one, in a general sense, to all three of you, your 
read on that focus, that it's great to pursue this new 
initiative and ultimately it can be a real benefit, but do we 
need to do a better job on FFMIA compliance that will help us 
get to that alternate goal, and then specifically from an audit 
standpoint, if you migrate to a COE, your opinions on how 
you're going to be treated in your audit if your COE that you 
migrate to is not FFMIA compliant, how does that impact the 
customer agency's audit?
    Mr. Williams. I would say in every interview we've had, 
each of the other COEs or those that might migrate to one 
expressed concern about not having a SAS 70 done and what the 
implication would be on their financial statement audit. 
Agencies are concerned, trying to figure out what that means 
downstream. My personal opinion is it would be hard for an 
agency to get a clean opinion if the Center of Excellence it 
uses had a qualified opinion.
    Mr. Kull. I think there is a difference, too, between an 
audit opinion and an opinion on a control environment at a 
particular service provider. We have situations now where we 
have service providers not compliant and yet they are able to 
somehow provide enough evidence about controls that allows 
people to use their systems and get clean opinions on their 
financial statements.
    Mr. Marshall. I think Dr. Combs' answer to that question 
was right on in that if your COE is part of a larger 
organization that has some issues, it doesn't necessarily mean 
the COE--that it would apply to the COE. It wouldn't 
necessarily get in its way of delivering good audit results to 
its customers. We see no incompatibility at all between the 
objectives of FFMIA and the line of business if they're managed 
appropriately.
    Mr. Kull. This could also be, if you're looking at 
standards for COE, if one were to establish principles or terms 
and conditions around which they're built, this may be 
something that allows that.
    Mr. Platts. That was going to be my followup; should a 
standard be that you need to be FFMIA compliant to be a Center 
of Excellence?
    Mr. Williams. The survey would say yes. All the respondents 
of the survey feel that way very much.
    Mr. Marshall. I think we would agree, but we might differ 
if the issue is not within the management purview of the COE, 
that might be a different story.
    Mr. Platts. In assessing whether an agency is FFMIA 
compliant, would you give more weight to the outside auditors' 
opinion on that compliance or the agency head's opinion?
    Mr. Kull. I'm going to express my personal opinions for 
sure. FFMIA is very clear that the determination rests in the 
agency head's hands. When I was at OMB, we had a number of 
agencies in that situation where the IG audit opinion on 
compliance was noncompliant, whereas the agency head believed 
that they were compliant. In every case, the agency presented 
us with facts as to why they believed they were compliant and 
in every case that I'm aware of, OMB accepted that as a 
compliance situation. And in the end, the evidence for me would 
be, is this agency head willing to sign a statement that they 
believe this information to be true, that they use this 
information to make decisions, and that they support the people 
who generate it, in a sense their own staff, absent anything 
contrary to that.
    Mr. Marshall. I have seen similar issues from the agency 
side, and I would have to agree with Mr. Kull, that first an 
agency head would have to be very, very careful before he signs 
his name to something that counters an IG or an auditor's 
report. But sometimes the issues are very close judgment calls, 
and honest differences of opinion can exist. And I would think 
that wouldn't happen very often that an agency head would make 
that decision, but if and when it does happen, I think it would 
be very well considered and again consistent with the law to 
give them that flexibility.
    Mr. Platts. Seems that if you have that evidence that 
suggests that you are compliant, that you would make sure 
that's presented as part of the audit, because if the agency 
head makes the determination and then OMB accepts it, that's 
still in-house, meaning it's still within the Federal 
Government and within the administration. That, I think, is in 
Section 803 of FFMIA's reason to have the auditor give that 
opinion, is to get that independent. And a concern that we 
have, a practice that allows that to happen, but how it's 
reviewed or weighted, I guess.
    Mr. Marshall, you talked about your looking at being a 
Center of Excellence, and GSA, and there is one other.
    Mr. Marshall. National Business Center at Interior.
    Mr. Platts. Where do you stand in that effort? And one 
who's looking at doing this, what's your comfort level and the 
guidance you have been given for this process and how it would 
be structured and what your perhaps liability would be if you 
don't match up and fulfill what your customers believe as far 
as paying for them to migrate somewhere else?
    Mr. Marshall. Our COE is up and running. We have customers 
coming to us, and it is fully operational. We're actively 
applying our experience in managing agency transformation and 
financial management systems. We're delivering an accountable 
service. It's delivered under strong, rigorous, enforceable 
service level agreements, and there remain some gaps, we think, 
in how agencies acquire our services and how they compare 
private services versus public COE services.
    We understand that a public COE could be engaged through an 
agency-to-agency memorandum of understanding without business-
like, enforceable service level agreements. So the level of 
accountability we see going to a private COE is much stronger 
and much more empowering of the agency customer than might 
exist through a public COE. And this is, again, one reason we 
advocate that government and industry to develop a sustainable 
framework so we can move together into this new environment in 
a measured and business-like way.
    Mr. Platts. Two followups, one is, can you walk me through 
the process of your being deemed a COE by OMB? And one of your 
customers is GSA, which is a COE. Are they in essence just a 
pass-through since they are also an identified COE?
    Mr. Marshall. Let me explain. CGI services GSA in two ways. 
First, a number of years ago, GSA selected our software 
Momentum to be its core financial system for the agency. They 
call it Pegasus; that's what they christened their accounting 
system. Pegasus now is in place as the financial system of 
record for both GSA's own agency operations and for the 
services that GSA provides to other agencies as a COE.
    For the last several years, GSA has hosted Pegasus on a 
commercial platform operated by another company, and at the 
same time, CGI has been providing systems integration and 
application support for Pegasus. So they've had a public-
private partnership involving two contractors as well as the 
government.
    Recently, GSA decided to consolidate all of these services, 
including system integration, hosting and application support 
under a single provider which is CGI. They think this will help 
give them a better handle on their services, increase 
accountability, and improve performance to have everything 
related to Pegasus and its COE handled by one contractor. So 
it's a great example we think of an effective public-private 
partnership being delivered now in this COE context.
    Bottom line relative to ourselves and CGI, we support GSA 
as a software provider and as the host for their official 
system of record. We provide the same services to GSA and to 
GSA's customers through the COE. It may be a little confusing 
for some, but those insiders who know the market and the way it 
works seem to understand it pretty well.
    Mr. Platts. And how are you deemed a COE?
    Mr. Marshall. Our financial management software has been 
certified by JFMIP, the predecessor to FSIO, and it's now 
offered on a hosted platform that's CGI. We've had discussions 
with OMB, told them where we are, and they have allowed us to 
all call ourselves a private COE.
    But there's no other certification requirement aside from 
those associated with our software. Of course, we're meeting 
all Federal security in our platform, and in our entire 
infrastructure, we will incorporate best practices and meet all 
appropriate Federal standards.
    Mr. Platts. Seems less stringent or involved of a 
certification process than what is talked about by Dr. Combs 
with the agencies themselves, that to become a COE that they 
are going to have to go through a more involved assessment and 
a lot of benchmarks and reviews to establish, in other words, 
have a pretty heavy burden of proof to be able to do it 
themselves. Is that a misperception on my part?
    Mr. Marshall. I don't think so. I think the due diligence 
checklist forms the structure of OMB's evaluation framework for 
a public COE, and we conform to all the elements in that 
checklist. We do conform. It's a certification process that we 
all participate in.
    Mr. Platts. So they work with you in running through their 
due diligence checklist, and you net all those before being 
certified.
    Mr. Marshall. That's right. Of course, our software, as I 
said, has gone through the entire process itself.
    Mr. Platts. Now as one who's not an insider on these issues 
as far as understanding them, a lay person, why would anyone 
contract with GSA as a COE versus just directly to you as a 
COE?
    Mr. Marshall. Why would an agency go through another?
    Mr. Platts. Rather than coming to you.
    Mr. Marshall. It may be because the agency, the COE offers 
value-added services in addition to the core hosting and the 
application support that we provide through them that provides 
to them a greater value, or they might--there may be a personal 
relationship between the government agency. Some agencies, as I 
think Mr. Williams' survey reflected, just have a comfort level 
doing business government to government with another private 
sector provider behind the scenes. I think it's a matter of 
preference and culture.
    Mr. Platts. One of my last questions to Dr. Combs, and it 
goes to this issue, is I think there is a real benefit when we 
allow the financial policymakers, CFOs and things to be able to 
focus on the strategic decisions based on the good information, 
and if we are effective in getting to COEs, that can be an end 
result, positive, of this effort.
    But my question was that concern about getting removed from 
having actual authority, if you're the CFO, over who's doing 
the information gathering and the assimilation and everything, 
and seems like that would be even complicated further if I 
contract with GSA as my COE, but they're actually contracting 
with you. So if there's something that now it's two levels 
away. Is that a legitimate concern or is it not as involved as 
it seems?
    Mr. Marshall. That's an issue in the minds of some 
customers who would rather have the direct SLA relationship 
with the ultimate service provider rather than through another 
party. And so you get, I think, throughout the market, 
different preferences, different cultures, different customers 
would prefer one approach to the other. We are here to do 
business with the government, whether directly or indirectly, 
through a COE. We'll respect their preferences.
    Mr. Platts. Yes.
    Mr. Kull. I'd like to make a comment about that. Part of 
the thinking around the President's management agenda back in 
2001 when the financial management part of it was developed was 
to move financial management in agencies from a processing 
environment to an analytical one. The thinking was that 
machines can do the processing, and it's getting more and more 
evident that they can do probably a better and faster job with 
good controls. What we needed to do was to change the way 
people handled their functions to be able to use that 
information analytically to find out how to run the business 
and their programs better.
    Mr. Platts. Right. Again, everybody focusing on their 
expertise. If we have the pure hosting COE versus one that's 
broader and more of a full service relationship, I think in the 
survey results the Association of Governments published an 
account, not the actual survey, but that one of the COE's for 
that paper said it does not encourage the pure hosting 
relationships, that it's better if you're going to be more 
comprehensive, full service. Opinion from the three of you. 
Sounds like, Mr. Marshall, your COE at least for some of your 
work is a pure hosting but not necessarily limited to that.
    Mr. Marshall. That's very true. A number of our customers 
just want the basic hosting, but we offer levels up. We have 
tiers that we describe: The first tier being the hosting; the 
second tier running applications for them; and then third and 
fourth running up to systems integration and process management 
and all the way to full business process servicing. So we're 
prepared to grow with the market all the way as the government 
evolves in that direction. We think there is a better value 
proposition, that the more integration you get, and with more 
specialization, the agency gets more ability to offload work 
that it may not do as well as we do. Again, all those benefits 
of specialization--focusing on what you do best, us in the back 
office and the agency in the front office--keeps compounding as 
you move up the four tiers.
    Mr. Williams. I would say, based on the survey 
respondenses, there is a great range of opinion as to what 
agencies want. Several want just hosting only. We heard from an 
agency 2 days ago that said they really would prefer to do 
accounts receivable themselves because it's so critical to 
their mission, but they'd like to see the whole accounting 
operation function being provided by some type of Center of 
Excellence. I think the key is one size does not fit all.
    Mr. Platts. Mr. Kull.
    Mr. Kull. I agree with the comments made by Mr. Marshall 
and Mr. Williams. It's neither good nor bad, it's the comfort 
level of a user. As a COE host, however, I would want to see 
more services offered because it means you can distribute your 
overhead over more activities, lower your cost and be more 
efficient. I could see why you would want to get out of just 
strictly being in software processing.
    Mr. Platts. Interesting, because in my understanding, if I 
got it right with the first panelists, is, there is a mandatory 
requirement regarding in essence the hosting of the 
applications. Either you are a COE or you go to one. We're 
mandating that hosting aspect but not the rest of it, so we are 
separating it; although it seems like there is a benefit of 
having taken that more comprehensive look.
    Mr. Marshall. As you move up those four tiers, you're 
moving up the value chain within the organization and driving 
more and more value through that.
    Mr. Platts. One of our concerns is, in getting a better 
understanding today, is that mandatory, just hosting and 
breaking that out as opposed to waiting and making a more 
informed decision on the whole package, it's a good goal, but 
we get a better result if it's a more deliberate, comprehensive 
approach; that maybe we're jumping the gun on one aspect rather 
than waiting and being more comprehensive. Let me check here.
    Looks like we're maybe about 5 to 10 minutes before the 
vote board goes off.
    What about the impact on the financial management work 
force across the Federal Government with COEs? Maybe it's too 
broad a question because we don't know how many will become 
COEs, how many are going to migrate to COEs, public or private. 
But any assessment, or did the survey----
    Mr. Williams. The survey asked a bunch of those questions, 
and we submitted the entire survey. We asked one about the top 
concerns, and virtually all the respondents put HR and the 
skill set for financial management personnel in the top three 
concerns. Many believe that COEs done right can actually 
augment the shortage of quality people today. Many have some 
concerns about, if they can't get good people, how could a 
Center of Excellence get good people? You hear it somewhat both 
sides of the conversation, but most think it's going to be of 
benefit to them.
    Mr. Marshall. We would agree with that. It's definitely a 
net positive. Many of these financial management staffs today 
are under-resourced relative to their rising work loads. You 
have to remember, many were hit as all the administrative 
functions were across the Government by the downsizing cuts in 
the 1990's. The process and streamlining improvements that were 
supposed to happen back then didn't happen, so they're stuck 
with platforms that haven't been modernized, and as you shift 
that to COEs, it will free them up to do what they do best--
policy, standards, and oversight--and let the COE's do what 
they do best, executing those back-office functions. So it is a 
win-win for the work force and taxpayer.
    Mr. Kull. I think the issue of finding the people to do the 
analysis and not the processing is going to be the real 
challenge.
    Mr. Platts. I'm going to squeeze a couple questions in. How 
about thoughts on the level playing field between--within the 
government franchise funds versus the various forms where 
they're able to set those sums apart year to year? There are a 
lot of variables out there as far as an agency assessing what 
their ability is versus a different one. Sounds like that 
they're looking at that issue with not a specific 
recommendation or approach right now. Any thoughts?
    Mr. Kull. I think that's probably going to be one of the 
biggest challenges of this whole effort, because we have the 
private sector firms that have to deal with return on 
investments and equity and those kinds of issues and very 
competitive pricing models, whereas you mentioned earlier about 
the full cost disclosure, what do these Federal COEs really 
cost? Are they recovering those costs? Where do they get the 
seed money to invest in hardware or software? Those are major 
issues, and there needs to be some coming to the table in terms 
of what is the playing field so that we really understand what 
the competitive environment will look like.
    Mr. Marshall. We agree with what Mr. Kull said, and I think 
you have hit the public-versus-public issues pretty directly. 
We need to get them on a comparable business model so they can 
compete fairly. Regarding public versus private, remember, 
agencies serviced by commercial entities go through the Federal 
Acquisition Regulations [FAR] process. It's a whole lot 
different than going through a memorandum of understanding 
without always a requirement to compete. So we're at a bit of a 
disadvantage, and we don't think that the playing field is 
exactly level. We have to account for all of our costs in a 
bid. We don't know that those are necessarily fully disclosed 
in a public bid. If an agency accepts a bid from both private 
and public entities and decides it wants to go public, it can 
cancel the acquisition and make an award directly through an 
MOU to a public COE, and we have no protest or appeal channel 
because the procurement has been canceled. Therefore, the FAR 
appeal rules don't apply.
    So we think we need to rethink these approaches to 
acquisitional and level the playing field, and it's a place 
where better dialog between industry and government should be 
used.
    Mr. Williams. The survey results would support that. Every 
agency would love to see more guidance on how to evaluate those 
bids and proposals fairly for the good of the agencies.
    Mr. Platts. If you're a public entity, such as the Bureau 
of Public Debt, and you'd have a major agency saying we want to 
migrate to you, which would require a significant increase in 
manpower, where do you get the funds for that since you have 
already got your appropriation. Currently there's no provision 
for hiring a huge new work force. Those are some of those 
uncertainties out there that I think we need to work through, 
and I think Dr. Combs and her staff are seeking to do that, but 
I think there is a lot of uncertainty, a lot of those types of 
core questions of how you do it, not is this a good initiative 
or worthy goal, but how to do it in a responsible way.
    Two final ones, one is on the service level agreements 
issue and OMB looking at the hosting, COE paying the cost of 
someone migrating to a new COE if things don't work out as 
intended. Thoughts on the appropriateness and how that 
especially relates if it is a private COE.
    Mr. Marshall. Speaking for a private COE, we're very 
concerned with that idea. A point of agreement----
    Mr. Platts. I'm not surprised.
    Mr. Marshall. A point of agreement with people at OMB is 
that we thought we were on the same page and that the SLAs 
should be based on a commercial best practices model, as much 
as possible. This just isn't the way business is done in the 
private sector. If a customer agency isn't happy with the 
services, it should have plenty of control by including 
financial penalties defined in the SLAs. SLAs are a great 
control mechanism to ensure corrections to service and so 
forth, and it's a whole lot better to manage the relationship 
in that kind of context than jumping into the divorce 
proceedings and asking, how do we split the blanket?
    Mr. Platts. The cost of that transition to a new one, your 
starting over again. Actually, did either of you have comment 
on that premise?
    Mr. Williams. All I would say is respondents felt very 
comfortable there was a course of action if a private sector 
COE didn't do well. They felt very confused what the course of 
action would be for a Federal or public entity.
    Mr. Platts. Again, comes to an appropriations question of, 
all right, you are not doing well, so you have to spend money 
to migrate me somewhere else; well, where does that money come 
to pay for that migration in your appropriation that's already 
set? I have not seen any proposal or am aware of any that would 
set kind of a sum aside for that contingency with OMB.
    I think we covered most of the areas I wanted to touch on. 
I think one is, I guess, I just want to emphasize again your 
insights are very helpful, and my hope is, as we go through and 
seek clarification, that there will be continued and enhanced 
dialog between your industry individually or collectively with 
OMB because you bring a lot of great insights into how this is 
going to play out and the likelihood of it succeeding, such as 
the issue of if you're the host agency and you have to pay for 
that new migration, how many private sector COEs are actually 
going to want to participate, which is certainly what the 
administration sees is an advantage here of competition 
generating a good marketplace. But if that's hanging out there, 
what competition outside of the government itself are we going 
to have.
    Your testimony is again very helpful and really kind of 
helped to well frame my insights as we addressed Dr. Combs and 
Ms. Evans, even with reading it at midnight or 1 am. It was 
well stated so I could capture the essence of the concerns 
individually or of the survey results. If you have any 
additional information, we'll be keeping the record open as we 
do for 2 weeks. But again, my sincere thanks for your testimony 
and your preparation and your patience here today with the 
previous panel. Thank you. We will keep the record open for 2 
weeks for any additional documents and including from Dr. Combs 
on some of those written questions that we'll be submitting.
    This hearing stands adjourned.
    [Whereupon, at 5:46 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Edolphus Towns and 
additional information submitted for the hearing record 
follow:]

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