Cloud computing is all the rage. But do we really understand what it is and how it works, especially as it relates to public-sector financial management?

Not to be left behind, the federal government is planning to move to cloud computing. Its 25-point implementation plan to reform federal information technology clearly includes cloud computing.

A background on the concept would help, especially for those of us whose world involves accounting transactions, accounts receivable, payables and such. On Wikipedia, you will find this definition: Cloud computing refers to the provision of computational resources on demand via a computer network.

In the traditional model of computing, both data and software are fully contained on the user's computer. In cloud computing, the user's computer may contain almost no software or data ... serving as little more than a display terminal for processes occurring on a network of computers far away.

The government's plan calls for agencies to identify three "must move" services, create a plan for migration to cloud solutions and retire legacy systems. One of the services must be migrated by this month and the remaining two by June. The government plans to embrace the software-as-a-service model, and has established groups to develop functional and technical requirements for a government-wide cloud solution.

Challenges with the cloud

It may not be clear flying to the cloud. In April, Amazon's Elastic Compute Cloud (EC-2) experienced a widespread outage that lasted several days and severely diminished access to the websites of thousands of its clients. This highlights concerns about a user's inability to control data that is hosted by third-party cloud providers.

So what does all this mean to the federal chief performance officer and other senior agency financial managers?

The CFO organization within any agency performs several financial management-related activities daily. Work surrounding core financial management tasks — accounts receivable, accounts payable, invoicing, cost accruals, grants management, reconciliations and financial reporting — could all potentially be moved to the cloud.

Case study: Labor Department

Any discussion about the move to financial management performed in the cloud environment should also include shared services. After all, what is the cloud but one large shared services center? Within the federal government, an example of this is the Labor Department.

In early 2010, Labor was replacing its 20-year-old financial management system, and decided that a system that could be integrated across 22 organizations was the way to go. This laid the groundwork for a cloud-based solution, whereby Labor implemented a financial management system through a Shared Service Provider Appliance.

Labor has experienced challenges with its move to a cloud environment. In addition to going from a legacy, batch system to a "real time" system, issues related to training and process changes arose.

These changes ran the spectrum of financial management activities, to include human resources, travel, procurement and invoicing. A symptom of these changes was a tripling of fees related to Prompt Payment Act requirements, and what Taylor refers to as "huge training issues."

Security concerns will continue to pose challenges for federal IT managers, and the move to the cloud will be no different. Questions about access to sensitive government data and unauthorized breaches into federal systems surround the debate over cloud computing. According to a panel of federal technology leaders that convened in early May, the greatest hurdle to moving data and programs to the cloud is federal executives' confidence in outside security systems.

It appears that cloud computing is here to stay. And it is clear that it makes overall good business sense for the federal government to adopt proven best practices from the commercial world.

Robert Maitner is senior manager at accounting and advisory firm Baker Tilly Virchow Krause.