California Auditor Blasts State’s $1 Billion Accounting Software Project

SACRAMENTO, Calif. (CN) – California’s rush to complete a long-awaited $1 billion accounting software project without fixing familiar problems could ultimately harm the state’s credit rating, the state auditor said Tuesday.

The California Capitol building.

After more than a decade of missteps and budgeting fiascos, the state has given an official June 2020 end date for work on a beleaguered information technology program called FI$Cal.

Instead of a sweeping update that will seamlessly modernize the state’s outdated accounting and cash management capabilities, State Auditor Elaine Howle says the unrealistic timeline will result in a different, lacking product than what was promised to taxpayers in 2005.

“Specifically, the updated project plan continues the project’s trend of removing key features from the project’s scope, increasing the budget, and developing unrealistic schedules, resulting in a product that will lack crucial features, such as bond and loan accounting tools, and will not include the transition of the state’s annual financial reporting to FI$Cal,” Howle says in the report.

The bloated and delayed project is one of the many IT projects the state has struggled to implement, including a failed attempt to develop a $500 million software system for all California’s 58 trial courts. Widely savaged by judges as a “fiasco” and a “boondoggle,” the Judicial Council of California abandoned the Court Case Management System, developed by Deloitte Consulting, in 2012.

In what has become a routine exercise, Howle blasted FI$Cal managers for a continued lack of oversight and cost overruns.

Project planning began in 2007 and while the design-and-development phase officially began in 2012, the state has habitually pushed back the completion deadline. The delays have led to massive budget increases as the project’s total cost has increased $446 million since 2012.

Citing a lack of available and incomplete financial reporting from the various state agencies involved with the massive project, Howle says the total cost could be much higher than the latest figure of $1.06 billion. It’s also likely that lawmakers are being left in the dark, Howle warns.

“Such discrepancies cast uncertainty over whether the Legislature is receiving adequate information about the project,” the 13-page report states.

The Department of Finance, Department of General Services, State Controller’s Office and State Treasurer’s Office will maintain and operate the new accounting software, implementing it in staggered waves. Many state agencies have already adopted the software and by the time it’s fully implemented, all state agencies will use the project to some extent.

In the past, the state has blamed the shifting costs and timelines on a variety of problems, namely troubleshooting the program and the process of training thousands of employees to use it.

In 2017, Howle pinned part of the blame on lack of communication between the developer, technology-services giant Accenture, and the state. She also accused the state agencies overseeing the project of ignoring her recommendations.

If the state sticks to its June 2020 end date, Howle claims it will be getting an “incomplete system that lacks budgetary transparency.”

Howle is also concerned that the fledgling program could impact the state’s credit rating and increase borrowing costs, as many agencies already using the program submitted late – and in some cases estimated – financial reports in 2017-18. Previous reports found that 48 entities submitted late financial reports in 2017-18, with many of the entities citing problems such as insufficient training and system limitations.

The agencies’ individual reports are used by the state to compile its annual financial outlook – which is due to credit agencies each April – and inaccurate reports can cost taxpayers in the long run.

“Thus, if the state’s credit rating were reduced, it is reasonable to assume that the state would incur additional borrowing costs. These additional costs could affect the state’s ability to plan for important projects that rely on billions of dollars in bond sales each year,” the report continues.

Despite the reporting issues in 2017-18, Howle says the delays didn’t “cause a material error” in the state’s annual financial outlook.

The report recommends that the Legislature require a new, ninth project plan update that outlines costs that will be deferred beyond June 2020, as well as more funding for the oversight of the project.

“Without action from the Legislature and the project office, as of the 2020 end date, the Fi$Cal project will result in reduced functionality, obscured projects costs and a misleading timeline that inaccurately portrays the project as having ended successfully,” Howle says.

FI$Cal said it takes the audit’s concerns “seriously” and pointed to the scope of the IT project.

“As of July 2019, we have delivered 93% of the system functionality. There are 152 departments and more than 18,000 end users processing $305 billion in expenditures each year using the FI$Cal system,” said FI$Cal spokesperson Lisa Gray in an email.

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