Auditor: California’s $1 billion accounting software project remains off-track

(CN) — In what has become a perennial refrain, an ambitious $1 billion effort to update California’s outdated accounting system has fallen behind schedule yet again, hobbling the state’s ability to conduct accurate financial reporting in ways that could harm its credit rating and make it harder to obtain federal funding.

“The project office will not complete the project by its scheduled end date of June 2022,” acting California State Auditor Michael Tilden says in a new report highlighting the latest setbacks.

Developers began working on the Financial Information System for California, dubbed FI$Cal, in 2007, with the goal of streamlining accounting and procurement processes for the state’s 152 departments. Project managers have coined FI$Cal as “one of the largest and most dynamic IT undertakings” in state history.

FI$Cal has been launched in phases over the last several years and the state says it has helped eliminate hundreds of old legacy systems and finally brought agencies under one accounting umbrella. The new program is being used by the State Treasurer’s Office to track the state’s over $2 trillion annual banking transactions while both the governor and Legislature use it during budget negotiations.   

But the project has been plagued by persistent delays and cost overruns. While the design-and-development phase officially began in 2012, the state habitually pushed back the completion deadline and drove projected costs to $1.1 billion, according to the Legislative Analyst’s Office.

"Even when the project office officially declares the project done, it will not have implemented all promised functionality, and doing so will likely incur significant expense,” Tilden’s report says.

This past July, FI$Cal director Miriam Barcellona Ingenito released an update celebrating the critical milestone of integrating with the State Controller's Office.

"This is a huge moment in FI$Cal’s history, and one in which the state can take great pride," Ingenito wrote.

But the auditor's report notes that staffing and resource shortages at the State Controller’s Office have kept it from actually verifying the state’s annual financial statement data produced by FI$Cal against its legacy system — a critical holdup in finishing the project by June 2022.

“In July 2021, the state controller was scheduled to begin verifying the data for fiscal year 2020–21 with support from the project office. However, this effort is behind schedule. According to the project office’s former chief deputy director, who left the project office in November 2021, a resource shortage at the state controller is the primary reason for the delay,” Tilden says. “The team leader for the state controller staff assigned to the project confirmed that staff shortages, as well as the delay in closing the state’s fiscal year 2019–20 financial statements, had caused the data verification to fall behind schedule.”

But, the report adds, this is only the latest “of many completion dates that the project office has missed” since June 2016. A staffing shortage at the FI$Cal office threatens its ability to maintain the new software when the vendors currently supporting the projects inevitably withdraw.

“The likelihood that the volume of work to maintain FI$Cal will increase in the near future as more agencies use the system, creates the risk that the department will be unable to provide all necessary support and maintenance functions after the project’s official end date,” Tilden says.

Despite the California Department of Technology's efforts to recruit new IT staff, the project has had a vacancy rate of 15% for the past five years, which the department attributes to fierce competition for employees with knowledge about information security and financial business processes.

"Staffing challenges are not unique to the department — many sectors of the economy are currently struggling to hire and retain staff amid the ongoing Covid-19 pandemic, Tilden says. "However, the department will need to mitigate these challenges as it prepares to fully manage maintenance of FI$Cal."

From its inception, FI$Cal was supposed to help the state produce more timely reports on its finances. But Tilden says the California has failed for the last three years to meet the federal government's April 1 deadline to publish its financial statements to be audited, jeopardizing billions of dollars in federal funding.

Agencies have ascribed their tardiness to difficulties in learning the new software. In response, the technology department launched FI$Cal Learning Center to provide web-based training for state agencies.

"While critical, these critical efforts have not yet resulted in all agencies submitting timely financial reports to the state controller," Tilden's report says, adding the auditor will continue to monitor the project as part of the auditor's "high-risk" program.

In an email, FI$Cal spokesperson Lisa Gray said that while there are lingering snags, FI$Cal has also had successes, including making expenditure data more transparent for the public.

"Today, FI$Cal serves as the departmental accounting system for 151 departments and approximately 15,000 users processing $436 billion in spending each year. The State Treasurer’s Office functionality handles about $3.3 trillion in state government banking transactions annually,” she said. “In addition, our Open FI$Cal website allows the public to view expenditure data for each department in the system, increasing state transparency. Departments are paying their bills and balancing their budgets every day using the FI$Cal system.

"We recognize, however, that there are challenges that stem from such an expansive and complex system and we are working diligently to address them,” Gray added. “We look forward to continuing our collaboration with departments, the State Auditor’s office and our partners in the Legislature to ensure that the FI$Cal system fulfills its purpose."

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