AOC by the Numbers

A closer look at the numbers for a huge and troubled IT project in California's courts show a glaring program error and a substantial undercount on predicted costs for the project, with nearly a billion dollars of those costs now riding on a deal with a private consultant that is in flux.

In an email sent out earlier this month, Justice Terence Bruiniers sought to allay allegations that judicial branch adminstrators were "double bookkeeping," keeping one set of numbers internally and reporting a different set of numbers to the California legislature. The reports to the legislature were supposed to detail costs for the IT project that has been handled largely by a private consultant but paid for with public money.

In his email, the justice attached a letter from the finance director for the Administrative Office of the Courts along with copies of the reports sent by that office to the legislature over the years.

"All of our reports have reflected our best accounting and cost estimates at the time of reporting," wrote finance director Stephen Nash. "The cost estimates, like any major project, have changed over time."

But the reports to the legislature appear to show substantial shortcomings.

An independent accountant in San Diego took a look at that data and found, to begin with, an understatement of $145 million in the bottom line for the cost of the IT project in an early report to the legislature. Basically, the estimated cost of the project two years into the future was not included in the total estimated cost.

"In the schedule of CCMS Revenue & Expenses that was submitted to the legislature for FY 2006/2007, the total expenses column was understated by $145,448,925," said Karen Covel, a partner with Lauer Georgatos & Covel in San Diego. Covel provides accounting services to Courthouse News Service and was asked to prepare an analysis of the AOC reports to the legislature.

"The FY 2008-09 expenses did not get picked up in the total as they should have," she said in her analysis of the numbers. "In all likelihood this was an oversight in the Excel formula, but a big one nonetheless."

At a minimum, the oversight merits an explanation, she said. But there is none.

More fundamental, said Covel, is a second series of undercounts in the reports.

The administrators consistently undercounted future costs by large sums for periods that were a scant two years out. Such near-future projections are expected to be fairly accurate.

"The AOC began to include estimated costs for subsequent years in the CCMS cost schedules beginning with FY 2005-06," Covel wrote. "I compared these cost estimates to the actual costs incurred for those years. Cost estimates for FY 2005-06 were understated by more than $11 million, for FY 2006-07 by more than $41 million, and for FY 2007-08 by more than $4 million."

In an interview, she said the year on year underestimation is the most significant shortcoming of the lot.

"The most serious one is underestimating the future costs year after year, only looking two years ahead," said Covel. "It's not like they had to look far ahead to get the estimates," she said. "In no year did they come up with a number very close to what they had budgeted with the worst year being 2006-2007 when they went over their budget by forty one million."

"Somebody," she added, "was not giving the budgeting much thought off by fifty six million for a three-year period."

In her written analysis, the accountant noted that during the year that followed, 2008-2009, the administrators veered the other way, overestimating costs by the large sum of $68 million. That overestimate was tied to predicted costs for installing the IT system, called the Court Case Management System, in local courts.

Because that installation called "deployment" by the administrators never took place, the money was not spent. In the meantime, however, the predicted cost of deployment skyrocketed.

A third area of problems in the reports to the legislature involves actual amounts spent on the IT project, said Covel. Because actual costs are fixed representing amounts already spent they should not vary in later reports.

"The actual CCMS costs incurred for FY 2002-03 through 2007-08 per the 2008-2009 Report to the Legislature don't agree to actual costs for those same years submitted to the legislature in prior year reports," said the accountant's written analysis.

"Since these are supposed to be historical costs that have already been incurred, they shouldn't change, or the change should be explained," the analysis continued. "The total unexplained decrease in actual costs between the two reports is $7,827,754."

This error is also unmentioned and unexplained in the reports to the legislature.

"It was a strange one, and was not explained anywhere," said Covel on the phone.

"I started looking at 2008-9, and I look at the columns for the actual costs in the years previous they should be the same as attachments for the two previous reports. There is no reason they should change, because they are actual costs."

"For some reason they have gone down $7.8 million," she said, "nothing to explain it, the numbers are completely different than what was on the previous reports to the legislature."

But all of these amounts the totals as well as the discrepancies are dwarfed by the current projections that add $1.5 billion to the total cost of the IT project, according to the AOC's projections. The bulk of that added amount is made up of a 990 million bill for deploying the system in all of California's trial courts.

But that big number, the accountant pointed out, comes with a question mark that could take the final costs skyward.

A footnote on every page of a schedule that accompanies the 2008-2009 report to the legislature says that $990 million figure is based on a past contract with Deloitte Consulting.

"Deployment vendor costs estimated based on a previously negotiated contract; vendor not currently under contract," says the footnote.

Covel points out that the footnote is inadequate because it does not say when the previous contract was negotiated.

"Was it a year ago? Two? Three? My point is that the farther back in time this previous contract was negotiated, the less it can be relied on as a measure of current cost," said Covel. "I think that a deployment cost estimate nearing a billion dollars warrants a more complete explanation of how it was derived."

The lack of an existing deal means that Deloitte is free to renegotiate the deployment either for more money or for the same amount of money and deployment to far fewer courts.

"God, these guys are not very good budgeters," said Covel. "I don't think I would rely too heavily on these estimates of future costs either, especially given the foonote it's on every page."

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