[Special Report on the Financial Management Modernization Project, Government of Guam]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 97-I-488

Title: Special Report on the Financial Management Modernization
       Project, Government of Guam

Date: February 19, 1997

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United States Department of the Interior

OFFICE OF INSPECTOR GENERAL
    Washington, D.C. 20240

SPECIAL REPORT

The Honorable Carl T.C. Gutierrez
Governor of Guam
Office of the Governor
Agana, Guam 96910

Subject:  Special Report on the Financial Management Modernization Project,
Government of Guam (No. 97-I-488)

Dear Governor Gutierrez:

This report presents the results of our review of the Government of Guam's ongoing
Financial Management Modernization Project. The review was requested by the Governor
of Guam during an August 13, 1996, meeting with the Inspector General, U.S.
Department of the Interior. In our opinion, depending upon its effective management and
implementation, the Project should result in fundamental improvements to the systems
used for the Government's budgetary, financial, treasury, and debt management functions.

BACKGROUND

The purpose of the Financial Management Modernization Project is to fundamentally
restructure the Government's financial operations and information processing. This
restructuring will impact all Governmental departments and agencies.  The Project
includes performing a major revision of the Government's budget concepts and processing
procedures, implementing a new financial accounting system, and restructuring the
processes and objectives of Governmentwide information processing. The Project is under
the oversight of the Guam Finance Commission, which is also responsible by law for
coordinating the Government's economic and financial data collection, economic
forecasting, financial management, and tax policy. The Guam Finance Commission, of
which the Governor of Guam is the chairman, includes representatives from the public
sector and the Executive and Legislative Branches. Although the Project has a steering
committee and several standing committees and working groups, there is no full-time
Project Director or other full-time Project personnel.

 
in Project oversight and management and reviewed Government and consultant documents.
We did not perform a cost-benefit analysis, review the procurement process, evaluate
current operations, or analyze actual and potential project costs. -4s such, we limited our
review to evaluating the potential for the Government to achieve the Project's objectives.

PRIOR AUDIT COVERAGE

During the past 5 years, neither the Office of Inspector General nor the U.S. General
Accounting Offke has issued any reports addressing the Government of Guam's Financial
Management LModernization Project.

DISCUSSION

In our opinion, the Financial Management LModernization Project, with effective
management and implementation, should result in fundamental improvements to the
Government's financial management by providing increased control over and better
understanding of the Government's financial operations and financial position by both
Government officials and the public. These improvements include legislation on budgeting
(such as performance budgeting) and information technology (such as requiring
procurement of compatible computer hardware and software). In addition, potential
improvements include: (1) better budgeting decisions with more accurate multiyear budget
planning; (2) better cash management with more accurate cash receipts and expenditure
forecasting; and (3) less time-consuming and less expensive system modernization,
integration, and revision with the planned acquisition of "open" computer software systems
architecture, thereby avoiding the constraints and high costs the Government encountered
with proprietary systems.  Further, in June 1996, the Financial Information System
requirements analysis identified a "Budget Information System" and an "Executive
Information System" as necessary Project components with the Financial Information
System. The Project has also resulted in draft legislation to establish a Bureau of
Information Technology. 3 Based on our review, however, we identified four aspects of
the Project that need further consideration: (1) providing for day-to-day Project
management and coordination, including the involvement of systems users; (2) establishing
project and control processes and planning, including cost estimates, cost-benefit
evaluations, and phased implementation of budget reform; (3) involving senior-level
accountants in evaluating potential accounting systems; and (4) clarifying the degree of
authority the Bureau of Information Technology will have over other agencies' operations.
Specifically, the Government may want to consider:

   - Hiring and appointing a Project Director; detailing two or three knowledgeable
individuals to work on a full-time basis as Project coordinators responsible for specified
portions of the Project; and ensuring the full involvement of potential users of Project

30n February 15, 1996, the Governor of Guam issued Executive Order No. 96-02, which created an
interim
Bureau of Information Technology.

3

 
We appreciate the assistance of Government of Guam personnel in the conduct of our
review.

Sincerely,

TV&h A. Lewis

Inspector General

cc: Executive Director, Guam Finance Commission
Acting Director, Bureau of Budget and Management Research

5

 
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systems, such as representatives of the management, accounting, budget, proeram, and
clerical activities of Government of Guam Departments and autonomous agencies.

   - Establishing an ongoing Project planning and control process to help ensure that
all needed steps are compl&edcand that projectbbjectives and milestones are achieved.
For example, Project management might prepare and maintain an overall Project Program
Evaluation and Review Technique (PERT) chart to accomplish this end.4 In addition, the
Government may want to consider utilizing other management tools/approaches, such as
preparing cost estimates for the entire Project; estimating the potential costs and benefits
of each major Project component, including cost estimates of contracts, personnel, and
related expenses in Project design and implementation (internal), and the work effort these
personnel and resources wouldr otherwise accomplish (opportunity); and designing and
implementing pilot programs in selected agencies to test implementation of Project
segments, such as the performance budget process.

   - Providing senior-level accounting managers in the Department of Administration
with the opportunitv to perform one or two site visits to examine operations at mainland
governments that nave efficient and effective automated financial systems. Since these
accounting managers will be the initial users of the Financial Information System,
exposure to operating financial systems and the opportunitv to talk with accounting
officials from other government jurisdictions should assist the Government's accountants
in evaluating potential accounting systems and providing more effective commentary on
any consultant proposals.

   - Clarifying the authority and functions of the Bureau of Information Technology
to help alleviate concerns expressed by Government officials regarding the extra level of
review that would be created by the Bureau which may cause delays in the development
of information systems, such as time delays in obtaining required approvals and/or
unnecessary requirements placed on the selection and/or development of new systems.

We believe that if the suggested actions are taken, the Government's financial management
will be improved.

Because this report does not contain any recommendations, a formal response to this report
is not required. However, if you have any questions regarding this report, please contact
Mr. Peter Scharwark, Jr., at (671) 472-7279.

The legislation, as amended, creating the OffIce of Inspector General requires semiannual
reporting to the Congress on all audit reports issued, the monetary impact of audit
findings, actions taken to implement recommendations, and identification of each
significant recommendation on which corrective action has not been taken.

4PERT uses the concept of a diagram of various events and activities arranged in time sequence
order with
associated costs to reach the start and/or completion of events in a project.

4

 
The Project began on January 17, 1995, when the Government amended an existing
                           financial
information systems, and treasury and debt management policies.  The consultant
       ,
subsequently reported in May 1995 that the Government should provide its elected and
management officials with the authority and tools to restore and- maintain sound financial
management with a modern integrated budget process and financial management system.
The consultant recommended that: (1) the budget process be reformed: (2) the financial
                        ,
management systems be modernized; (3) thi efficiencv of treasurv management be
improved; and (4) a comprehensive debt management strategy be developed.

On October 27, 1995, a subsidiary of the consultant was awarded a $1.97 million contract
to: (1) prepare an information technology plan; (2) prepare a requirements analysis before
a financial information system was developed; (3) provide a multiyear budget planning
model; (4) prepare and provide training on the budget reform process; (5) prepare a cash
flow forecasting model; and (6) provide a structure for treasury and debt management
reform. As of November 20, 1996, work on the first four items was essentially complete.
In addition, work on the cash flow forecasting model was in process, and work on the
treasurv and debt management reform began in January 1997.
  w

Although the Government could not provide a complete estimate of the total costs
(contractual, internal, and opportunity) for the entire Project, we estimated, as of
November 20, 1996, based on information that was provided, that Project contractual costs
alone may be as much as $6 million. This estimate was derived from the following: a
contract for $1.97 million that had been awarded; additional service contracts costing an
estimated $900,000 that had been funded;' and the Commission's estimate (July 1996) that
completion of the Project, including the selection and implementation of the Financial
Information System, would cost from $2 million to $3 million. The additional service
contracts included a $750,000 contract for work on the Budget Information System and
a $150,000 contract for consulting work (outside of the scope of the October 1995
contract) needed to coordinate the proposed Financial Information System with ongoing
modifications to the accounting system of the Government's Executive Branch.

OBJECTIVE AMI SCOPE

The objective of our review, which was conducted during August through November
1996, was to determine whether the Financial Management Modernization Project has the
potential to improve the Government's fmancial management in the areas of budgeting,
financial information systems, treasury management, and comprehensive debt
management. To accomplish our objective, we interviewed Government officials involved

`The original contract was issued on February 25, 1991, to provide consulting services to the Guam
Tax
Code Commission, predecessor to the Guam Finance Commission.

`On November 15 1996 the Director, Office of Insular Affairs, U.S. Department of the Interior,
notified
the Governor that ke twi components ($750,000 plus $250,000) were approved for a $9OO,OOO
Depamnental
technical assistance grant.

2