The ‘future is at risk’ for government’s biggest civilian payroll provider, study finds

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The National Finance Center — a part of the Agriculture Department — provides payroll services for over 170 agencies, but a lot of them aren’t happy with the services they’re getting.

The future of the federal government’s largest civilian payroll provider — the Agriculture Department’s National Finance Center — is “at risk without prompt action,” an expert panel writes in a new report requested by the Agriculture Department itself. 

The center, dubbed a shared services provider for federal human resources management, has provided payroll, HR and retirement services for other agencies since the 1970’s.

It survived an early-aughts push to consolidate over 20 payroll providers in the government down to four, but now the center needs to take “immediate remedial action while simultaneously planning for a multiyear transformation that will affect almost every aspect of NFC's governance and operations: leadership, planning, workforce, IT systems, funding sources, employee engagement and customer experience,” the report, written by the National Academy of Public Administration, states.

One big problem for the center is that its customers aren’t happy with the services they are getting, according to the report, whose authors talked to eight of the center’s 170 customers and also looked at previous focus groups and reports. 

“Several customer agencies have indicated… that they would migrate to another service provider if they could,” the report says. 

The center is fee-funded, meaning that “if only one large customer were to leave NFC, it would likely be the beginning of the end for the organization because NFC’s fixed costs would need to be spread among fewer customers. If NFC’s services were to become less cost competitive, there would be even more incentive for customers to look for alternatives.”

Agencies using the center described worsening problems with customer service over time as part of the reason for their displeasure.

“Processes have become more bureaucratic and take longer, communication has deteriorated, and staff who were knowledgeable of the systems and had the ability to resolve customers’ issues have left the organization,” the report states. Inside the center, “it can take years to get permission to make even no-cost improvements.”

The technology undergirding the center’s work also needs improvements, according to the report.

“NFC is running its operations and services on antiquated code and systems that are not user friendly,” it says. 

Many internal processes are still paper-based. The mainframe system is based on COBOL and has been highly customized over decades — often without documentation — to meet customer requirements, making it difficult to understand. The cybersecurity status of the mainframe is also a concern for the center’s agency customers, the report states.

And the center’s status as a fee-based organization with caps on what it can reserve and how much tech investments would cost also present challenges.

The center is also grappling with attrition challenges and a loss of employees with institutional knowledge about its complicated systems, as well as low morale. 

As for what the center should do moving forward, the report offers several recommendations. For its tech, it needs to go after both short-term wins — like replacing paper processes — and long-term planning for replacing its mainframe, the report states. A “rough order of magnitude” cost analysis for mainframe modernization found a $200 million to $300 million price tag.

For now, the Agriculture Department is working on a strategic plan, although it is not yet public, as well as an IT roadmap, according to the report. According to a USDA spokesperson, the five-year IT modernization roadmap is meant “to transform NFC into a customer-centric, reliable and modern provider of human capital solutions and payroll services, while adding value to the organization.” Cost estimates for tech and facility upgrades are underway, they said.

The spokesperson told Nextgov/FCW that it will use the report’s findings in its “ongoing process improvement efforts and long-term plan to help the NFC ‘Stabilize, Modernize and Grow.’”

Already, the agency has appointed a director of customer and employee experience, Monica Lear, the spokesperson said, and is working to hire over 80 new employees by January of next year. A third-party vendor is also doing a cybersecurity vulnerability assessment for NFC now, they said.

After years without consistent leadership, the center acquired a director and deputy director — Michael J. Jackson and Angelique Dryer, respectively — in the last two years, who are meeting with employees and have set up a customer steering committee to address problems, the report states. 

As for the stakes of the problem, the report notes that, “it is unthinkable that the U.S. government could find itself in a position where it could not pay a sizeable portion of the federal workforce — but it could happen, at least in the short term.”

The report states that fallout from an NFC failure would be felt by "hundreds of thousands of federal employees" across NFC's approximately 170 government clients.

“No other organization currently exists that can readily absorb NFC’s customers, each with their own specialized and tailored procedures and requirements,” the report states.

The USDA isn’t the only corner of the government paying attention to how it manages employee services.

More recently, the General Services Administration tried to create an enterprise software-as-a-service payroll platform for the whole government called NewPay, meant to help shift legacy systems to a cloud-based solution.

Although the agency received a Technology Modernization Fund investment for the project and created a minimum viable product as part of the effort, Congress did not fund planning and migration of payroll shared service providers and agencies according to the TMF website.