A market valued at nearly US$80 billion per year certainly gets the attention of vendors hoping to participate in it. For the information technology sector, the notion that the U.S. government spends about $79 billion per year for IT has gained credence as the figure often cited by the U.S. Office of Management and Budget (OMB), and in references from the federal chief information officer (CIO).
However, the U.S. Government Accountability Office (GAO) has faulted OMB for underreporting actual annual federal investments in IT. GAO failed to provide its own estimate of the shortfall in dollar terms, but indicated that the additional uncounted spending was significant.
“OMB often uses the $79 billion figure in referring to annual federal investments in IT. However, it is important to note that this figure does not reflect the spending of the entire federal government,” GAO says in a report released in late September.
The OMB tally leaves out IT spending by the U.S. Congress for its own operations, the federal judiciary system, and intelligence spending, mostly at the Central Intelligence Agency (CIA), the report notes.
“When you figure in the Congress, the court system and intelligence, the annual federal IT spend could be in the range of $120 billion,” Deniece Peterson, senior manager of federal industry analysis at Deltek, told CRM Buyer.
“The work OMB does on analyzing IT investments can be very useful, but the final figure should not be cited as the total picture,” she said.
The OMB figure “could be 40 to 50 percent higher if you count intelligence of around $10 billion, plus all the IT spending that is not broken out as an ‘investment’ but rather is just plumbing in other programs of record,” Steve Charles, cofounder and executive vice president of immixGroup, told CRM Buyer.
OMB not only leaves out Congress and the judiciary, but also fails to include “the quasi agencies — like the Postal Service,” he said.
Flexible Definitions for IT
The OMB estimate is based on a survey of 26 federal departments and major agencies. However, even within those agencies IT spending can be undercounted. Reporting guidelines are not precise, GAO, notes.
“OMB officials acknowledge that agencies are able to interpret the definition of IT in different ways, but stated that they want to provide agencies some flexibility in deciding what they report on,” GAO says.
That situation could frustrate one of OMB’s main duties of properly monitoring federal agency spending and performance.
“Until OMB clarifies and enforces its requirement that agencies should be reporting on all IT investments, selected IT investments will not be subjected to the enhanced oversight, and OMB’s estimates of federal IT investments will be significantly understated,” the GAO report warns.
Flaws in reporting also make it difficult to find out whether agencies are spending funds on duplicate IT systems.
The oversight issue did not go unnoticed after GAO released its findings.
“A disturbing new GAO report makes it clear that the federal government has only a loose idea of the money it devotes to information technology. GAO also found that agencies categorize their IT investments in different ways, making it difficult to weed out duplication,” said Sen. Joseph Lieberman, I-Conn.
“This type of loose accounting and wasteful spending is sloppy, lazy, and wrong at any time, but especially when we are trying to squeeze the most value out of every single scarce taxpayer dollar. I urge the Office of Management and Budget and federal agencies to improve their reporting on IT investments and eliminate unnecessary IT systems,” he said.
Market Intelligence for Vendors
While critical of much of OMB’s effort to assess IT investments, GAO notes that OMB has made good progress in simply setting up a system for tracking and gathering extensive data, called the IT Dashboard, and making its findings available on the Internet. As a result, the report provides some general market intelligence of use to vendors.
For example, GAO reported that nearly two-thirds of planned IT spending for 2011 by the 26 federal entities — about $54 billion — was allocated to operation and maintenance, while $24.7 billion was allocated to new IT developments. Of the combined new development and O&M spending, agencies programmed about half for “major” and half for “non-major” projects.
GAO also ranks spending by function, listing 18 expense categories plus an “all other” component. The top five IT spending functions:
- information and technology management, at $35.4-billion;
- defense and national security at $9.3 billion;
- all other at $7.2 billion;
- health at $5.0 billion; and
- supply chain management at $3.3 billion.
The agencies surveyed by OMB planned to conduct 7,248 IT investments in 2011, the report notes, breaking out the number of projects for each function. It also breaks down investments within a number of federal agencies.
The GAO report, “Information Technology: OMB Needs to Improve Its Guidance on IT Investments,” is also valuable for what it reveals about the federal IT budgeting process as it affects IT procurement.
“The bigger issue out of the report is it shines a light on the fact that the GAO, agencies, and Congress are not on the same page. The issue is far bigger than an inaccurate report,” said Charles.
Agencies begin budget planning about 18 months before the actual fiscal year, and the congressional appropriations cycle is not attuned to the planning cycle, he noted. Thus, information based on spending plans may be of limited use.
“Timelines are not in sync for budgeting and appropriations, and Congress has the ability to change a decision after an agency has already budgeted and the procurement is in process,” Charles said. “A report like this one can expose other issues it wasn’t even looking at.”
In the last year and a half, the federal government has been encouraging — if not requiring — federal agencies to move to the cloud and implement data consolidation initiatives. The impact of such moves in the future might improve the tracking of federal IT procurements.
“Such initiatives could help the investment-monitoring process since similar investments could be consolidated in a cloud approach,” David Powner, director of information technology management issues at GAO, told CRM Buyer.
However, it would again come down to how much detail the agencies would provide about their cloud and consolidation migrations, he said. “An important point here is the transparency of what business functions and associated dollars are moving to cloud approaches.”