Payroll merger takes shape

Effort is the first of OMB's financial systems consolidations

The Bush administration views the consolidation of payroll services as the first salvo in merging federal administrative services.

The Office of Personnel Management this month chose four agencies to take over payroll processing previously provided by 22 agencies.

The effort is a model for future consolidations of other transaction-processing functions, said Mark Everson, the OMB deputy director for management who President Bush recently nominated to become the next IRS commissioner.

'We will standardize this and drive down the cost in doing so,' Everson said. 'There is a lot more opportunity, and this is the start of that.'

Everson said financial statements and ledger record-keeping are other areas where mergers could occur.

Last week, when detailing the administration's fiscal 2004 IT budget proposal, Mark Forman, OMB associate director for IT and e-government, said OMB has identified six areas for consolidation. He singled out financial systems and noted that there is more than $100 million of redundant IT spending in that area.

Everson commended OPM and the agencies for cooperating, adding, 'It is not something you can always do in government.'

Balancing strengths

OPM chose two teams of two payroll providers'one consisting of the Interior Department's National Business Center and the Agriculture Department's National Finance Center and the other of the Defense Department's Defense Finance and Accounting Service and the General Services Administration'from eight proposals. The four providers already perform payroll services for 75 percent of all civilian employees and for all Defense employees, OPM director Kay Coles James said.

OPM urged the two sets of agencies to team up after its E-Payroll group decided that none of the eight proposals met all of the government's needs, James said.

Now the real work begins, said Janet Dubbert, OPM's E-Payroll project manager. The OMB schedule calls for the migration and consolidation to be finished by September of next year. OPM and OMB estimate the government will save about $1.2 billion by streamlining its payroll processing.

But before the government will see those savings, OPM and the agencies must spend about $40 million this year and $50 million next year on E-Payroll, said Norm Enger, director of OPM's e-government projects.

Choose a team captain

By Feb. 3, agencies must tell OPM which team will handle their payroll processing. OPM tentatively assigned agencies needing a new service provider to one of the teams, sources close to the project said. Agencies can appeal to OPM to choose a different provider than the one assigned.

The decisions were made based on a number of factors, including agency size and geographic location, and each provider's processing capacity, an OPM spokesman said.

The technology in use by the providers and customer agencies also played a role in the assignments. DFAS and GSA use Oracle Corp.'s human resources application as the front end to their custom payroll systems, Oracle spokesman Michael Sperling said.

The USDA's National Finance Center in New Orleans uses software from PeopleSoft Inc. of Pleasanton, Calif. Interior's National Business Center runs a custom application with an Oracle database on the back end.

Next comes the merger of the DFAS, GSA, Interior and USDA services. The four have until August to submit a plan, Enger said.

'The intent here is to wind up with them consolidating their payroll operations and eventually running the same software and same solution on their platforms,' he said.

While the payroll teams work on their migration plans, OPM will help the customer agencies standardize the more than 50 payroll functions in use governmentwide and issue a policy guide by March, Dubbert said.

'This will be the benchmark in both government and industry,' Forman said. 'Many of the 22 payroll processors were running technology that was outdated.'

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