Reform Commission Consolidation and Shared Services Committee

1. Reform CommissionConsolidation and Shared Services Committee Shared Service Agency Agreements

2. Payroll Current State • Payroll administrative support for many agencies is currently provided by shared service providers: • Corrections – supports 38 institutions • VDOT – supports 11 District Offices • Health – supports 2 agencies (39 local offices) • DRS – supports 6 agencies in HHR secretariat • Select Agency Support – supports 16 cabinet agencies • DOA Payroll Service Bureau – supports 55 agencies

3. Shared Service Payroll Opportunities • Most agencies not currently receiving services from a shared service provider should be transitioned to the DOA Payroll Service Bureau • Jamestown/Yorktown Foundation, DGIF, Agriculture, Forestry, Veteran’s Services, VEC, DCR, DSS, Juvenile Justice, ABC • Social Services may consider the merits of obtaining payroll services from Health’s or Rehabilitative Service’ shared services • Juvenile Justice may consider the merits of obtaining payroll services from Correction’s shared services • DBHDS should consolidate payroll services supporting their 16 behavioral health institutions • The Virginia Community College System Office should consolidate payroll services supporting their 23 institutions • The seven non-decentralized institutions of higher education should consider entering into joint cooperative agreements to obtain/perform payroll services from/for one another

4. Shared Service Implementation Strategy Opportunities • Shared administrative support is facilitated within secretarial areas because agencies: • Often have similar missions and programs • Are more likely to be able to leverage agency-based administrative systems • Are subject to the existing cabinet chain-of-command structure to encourage participation and compliance • Direct the maximum use of administrative support shared service arrangements, particularly within secretarial areas where systems and operational missions are compatible. • Secretaries should designate an agency within their Secretariat to provide all administrative support services to small agencies (i.e., agencies with fewer than 350 FTE) • Administrative support services include, but is not limited to: • Procurement, fiscal, human resources, and information technology security

5. Shared Service Implementation Strategy Opportunities • In consultation with respective central service agency (i.e., DGS, DHRM, DOA, VITA) secretaries should implement comprehensive administrative service level agreements between their designated service provider agency and customer agencies • SLAs should explicitly define: • Internal control and service level expectations • Expand the substance of the relationship between the service provider and agency to transfer more responsibility for internal controls to the service provider • Communication channels • Roles and responsibilities • Functions, processes, communications channels, shared costs, policy/procedure development • Administrative service providers should have the power to give oversight, direction and expertise to agencies served

6. Shared Service Implementation Strategy Opportunities • COV will not realize savings in personnel or costs since small agencies are currently using minimal resources with marginal results • However, shared services will impact the quality of internal controls over COV assets and enhance the quality of data available to management to support business decisions • COV should develop a funding model for shared service arrangements and enterprise systems that: • Establishes internal service fund rates • Ensures rates charged are reasonable and justified • Eliminates sole reliance on general fund support for administrative services • Allocates costs among users in reasonable proportion to services provided by charging all users, including non-general funds, a reasonable proportion of the cost of services provided

7. Shared Service Enterprise-wide Systems Implementation Strategy Opportunities • Cardinal (the enterprise financial management system currently under development) and other enterprise systems should be implemented in such a manner as to optimize the use of shared service arrangements to support functional business processes • COV should develop a governance framework and implement shared services supporting enterprise IT applications • Governance framework should allow central service agencies (i.e., Accounts, General Services, Human Resource Management, Planning and Budget, Treasury and VITA) to fulfill statutory requirements while supporting an effective, efficient, cohesive and integrated systems environment • Governance framework should include participation from line agency business leaders to define agency business needs and provide collaborative applications and services to agencies performing similar functions • Governance framework should support the consolidation of information technology development and maintenance resources under a shared services environment • All central service agencies should develop short and long-term strategies supporting these recommendations

8. Appendix Synopsis of APA report entitled Review of Service Agency Arrangements, dated October 2009

9. Shared ServicesCurrent State • Agencies of all sizes operate autonomously in both delivery of core mission services and fiscal and administrative functions • Note: Fiscal and administrative functions include accounting, procurement, human resources, payroll and information technology • Agencies dedicate the majority of their funding and staffing resources to their core mission services. However, core services cannot be delivered without effective fiscal and administrative services • Fiscal and administrative functions are complex, requiring a detailed understanding of federal/state policies and accounting rules/regulations

10. Large Agency Characteristics • Large agency resource levels support both operational and fiscal and administrative activities • Staff responsibilities are narrowly focused, allowing strong knowledge base and appropriate segregation of duties • Funding is available to build IT applications to enhance managerial data that is not readily available through central applications

11. Small Agency Characteristics • Smaller agencies typically lack sufficient resources, knowledge and guidance to independently perform fiscal and administrative functions. Small agencies struggle to: • Execute key fiscal and administrative functions with appropriately segregated roles and with documented procedures • Provide adequate staff training and cross-training of staff, particularly due to infrequency of some activities such as human resources, procurement and information technology security • Provide sufficient back-up staff for continuity of operations • Support both administrative and programmatic responsibilities when individual employees are responsible for both • Meet management reporting needs with existing enterprise-wide applications • Smaller agencies face greater risks • Budgetary reductions and continuing pressures increase the likelihood that smaller agencies’ control environment could be compromised • Protection of critical and sensitive data could be compromised • Ability to process key transactions and fulfill administrative responsibilities could be compromised

12. Shared Service Arrangement Objectives • Increase quality and consistency of fiscal and administrative information for better decision-making • Increase the efficiency of fiscal and administrative support delivery • Leverage the knowledge, skills, and abilities of the service center personnel to strengthen internal controls • Facilitate effective knowledge transfer among service center staff and between the agency and the service provider • Promote cross-training to ensure sufficient back-up for critical roles

13. APA Report – Alternative Shared Services Models • Single back office service provider addressing all fiscal and administrative support functions (Examples: Division of Select Agency Services, Department of Rehabilitative Services) • Supports organizations with related operational missions • Nature of transactions and support services needed to sustain their operations are similar, which allows service center to maximize the knowledge, skills, and abilities of their staff to meet the individual needs of the agencies served. • Combination of separate service agencies providing support for specific functions, such as payroll, human resources and procurement • Allows agencies to outsource specific areas of needed assistance while retaining autonomy over other areas • Complexities: • Requires agencies to develop and manage relationships with one or more service providers • Requires service providers and agency to coordinate planning among all parties to ensure sufficient monitoring and control points

14. APA Recommended Implementation Strategy • Agencies should outsource entire fiscal and administrative function • Allows concentration on core mission services, while improving their fiscal and administrative efficiency and strengthening internal controls • Secretaries should designate an agency within their Secretariat to provide all fiscal and administrative support services to small agencies • Increases likelihood of similar programs requiring similar support • Chain of command already in place to encourage participation and compliance

15. APA Recommended Implementation Strategy • Implement comprehensive memorandum of understanding between parties explicitly defining: • Internal control and service level expectations • Expand substance of the relationship between the service provider and agency to transfer more responsibility for internal controls to the service provider • Communication channels • Roles and responsibilities • Functions, processes, communications channels, shared costs, policy/procedure development • Service providers should have the power to give oversight, direction and expertise to agencies served • Note: COV will not realize savings in personnel or costs since small agencies are currently using minimal resources with marginal results. However, shared services can impact the quality of internal controls over COV assets and enhance the quality of data available to management to support business decisions.