Integrated financial management systems: assessing the state of the art.

• Author: Miranda, Rowan

An exploration of the major components of an integrated system includes ratings of the functional features of selected integrated FMS software packages by 25 state and local government users.

Across the country, state and local governments are rapidly replacing their financial management systems (FMS) to cope with the year 2000 problem and benefit from the power of modern client/server technology. Problems with legacy systems include the proliferation of independent databases, inflexibility of current budget formats, rudimentary budgetary controls, difficulty of integrating with desktop applications, and timeliness of financial reporting. Governments also have sought to modernize their financial systems to take advantage of the power of relational databases as a means to improve organizationwide decision support. The rapid pace of change in the technology market, however, poses complex and difficult challenges for finance officers seeking to acquire new systems.

Finance officers are confronted with several major questions: 1) Should their jurisdictions adopt enterprisewide integrated FMS or link together single applications, e.g., "best of breed" solutions?, 2) What are the requirements for specific components - e.g., general ledger and purchasing - of an FMS?, and 3) What are the capabilities of current software products to satisfy these requirements?

In an effort to improve financial software procurement, the Government Finance Officers Association (GFOA) Research Center has initiated programs to disseminate knowledge on technology among its members. This article, the first in a new series of GFOA publications that will focus on improving the effectiveness of software procurement, briefly reviews the pros and cons of FMS integration, summarizes "must have" and leading-edge capabilities of major software components, and presents results from a recent GFOA survey of state and local government financial software users.

Independent or Integrated FMS?

State and local governments have chosen one of two paths in designing a financial system: independent stand-alone systems or integrated systems. Independent systems are oriented toward single applications such as payroll or purchasing that function apart from other activities in the finance organization and have their own sources of data, databases, software programs, hardware, and information management standards. The main advantages of independent systems is the ability to select best-of-breed packages: e.g., the individual application is superior to any integrated system available. Some in the industry argue that best-of-breed packages cost less and pose minimal implementation risk. Another argument that also favors independent systems is that the failure of one application does not impose systemwide failure. These advantages aside, independent systems are associated with many deficiencies related to the sharing and accessing of information for decision support.

Modern integrated FMS are generally modular in nature and built around a general ledger system. In theory, each module can be implemented on a standalone basis, but the power of the system increases when the modules are tied together through common databases, financial reporting tools, and development tools. The presence of functional integration is largely driven by features of client/server technology such as distributed processing, graphical user interfaces (GUIs), and relational databases. An integrated FMS provides organizationwide access to shared data that are consistent and readily available. For example, in an integrated system, a purchasing module can share vendor information with the accounts payable module and simultaneously streamline entry of assets to the fixed asset module. In addition to minimizing data entry and document handoffs, integration significantly improves timely reporting.

Components of Integrated FMS

In acquiring integrated FMS, governments typically begin with the implementation of core modules such as general ledger, payroll, and purchasing because year 2000 compliance is likely to be most important in those areas. Other applications are then added. Each major subsystem of an integrated FMS is described below with leading-edge features highlighted.

Budget Development. Budget development modules coordinate organizationwide operating and capital budget preparation, analysis...