California’s $1 Billion Accounting Software Continues to Plague Taxpayers

Nearly 15 years in, Fi$Cal remains incomplete and over budget while critics warn it could damage California’s pandemic recovery.

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SACRAMENTO, Calif. (CN) — In the land of botched bullet trains, scrapped underwater tunnels and failed court docketing systems, another billion-dollar California public works project is causing more problems than solutions.

Billed as a money-saving update to outdated accounting systems, a software project decades in the making that most Californians have never heard of continues to steamroll deadlines and soar past budget targets.

Though the accounting software known as Fi$Cal is now in wide use at California state agencies, watchdogs are warning its well documented, lengthy list of past and current troubles could end up stymying the state’s financial recovery as it trudges through the pandemic-induced recession.

The massive IT project

The $1 billion project goes back nearly 15 years, outlasting multiple governors and several legislative sessions. Despite a handful of missed completion dates, project costs that have ballooned by more than $200 million and troubles implementing the software at the myriad state agencies, Fi$Cal has flown relatively under the radar.

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 utilize it during budget negotiations.   

“It’s a big job to support the financial management of California, which serves 40 million residents and boasts the fifth-largest economy in the world,” Fi$Cal director Miriam Barcellona Ingenito noted in a recent project update. “The Fi$Cal system modernized how the state of California manages its finances.”

Outside of bureaucratic uses, Barcellona Ingenito boasts Fi$Cal has “opened California’s books” and allowed taxpayers to peruse how their money is being spent. An accompanying October 2020 status report to the Legislature paints a similar rosy picture, stating the Fi$Cal launch was becoming so efficient it came $25 million under its 2019-2020 expenditures budget.

Project managers are now telling the Legislature the final target completion date is June 2022.

Auditor zeroes in on Fi$Cal

The project has largely dodged scrutiny or intense oversight from California’s leaders, but it hasn’t been able to escape State Auditor Elaine Howle.

A perpetual thorn in the side of Fi$Cal’s project managers, Howle has audited the project over a dozen different times. In her latest update, Howle uncovered the usual budget concerns but this time she warns the wayward project could harm the state’s credit rating and ability to recover money spent fighting the pandemic from the federal government.

“Financial reporting delays may ultimately prove costly for the state,” Howle said in her latest Fi$Cal investigation. “We remain concerned about agencies’ late reporting in the future, given that late reports increased over the last two reporting cycles and the project office has acknowledged that some large agencies are still experiencing delays.”

As for the latest Fi$Cal update, Howle says lawmakers shouldn’t be fooled by the self back-patting as there are still plenty of flashing alarms.

In a bit of shifty accounting, the auditor counters that Fi$Cal managers are obscuring the real project cost and have decided to defer features such as automating cash transfers for departments. More distressingly, Howle notes 12 major state agencies weren’t able to produce their year-end financial reports on time, causing State Controller Betty Yee to release the state’s comprehensive report late for the second straight year.

Howle says another tardy report from Yee could make it harder for the state to borrow in coming years as credit agencies rely heavily on the sweeping document. A credit hit would be particularly damaging as the state is expecting deficits in the coming years due to the coronavirus pandemic and may need to borrow to balance its budget.

Agencies’ inability to produce comprehensive and timely reports could also complicate the state’s push to recover billions spent fighting the coronavirus.  

“Reliable tracking of expenditures is an issue of increasing importance during the Covid-19 pandemic as it helps allow state agencies to take full advantage of federal relief funding,” Howle told lawmakers.

In a statement to Courthouse News, Yee said that while agencies were become more familiar and efficient with Fi$Cal, the state’s financials may come out late again in 2021.

“The State Controller’s Office continues to ensure sustained oversight of the FI$Cal project and is actively working with the Department of Finance and FI$Cal on earlier engagement with and training for departments on more timely submission of reports for the comprehensive annual financial report,” Yee said. “Departments are substantially ahead of reporting for the same time last year, but it is too early to provide an estimate for publication.”

In its latest review, the S&P gives California a stable AA- general obligation bond rating, although it does highlight the fact last year’s report was submitted “late.”

Deja vu

“It boggles my mind,” says Karen Covel, a certified public accountant at San Diego-based Lauer Georgatos Covel Devine & Feiles. “Previously California never had a problem getting reports out on time. Then we spend $1 billion on new software and suddenly can’t get our reports out?”

Covel, who has provided Courthouse News with professional services in the past, said Fi$Cal is inducing memories of another bloated, delayed and ultimately failed IT project that was supposed to bring uniformity to the state’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. Instead of a revolutionary system owned by the state, the $500 million project was tossed aside with individual courts left to implement their own docket programs.

With the finish line being extended again, Covel wonders if Fi$Cal will suffer the same fate.

“Oh my God, this is CCMS all over again,” Covel said of her initial reaction to Howle’s audit. “Are they going to turn and go ‘We can’t do this’.”

Of all the issues facing the state’s Democratic leaders, from unemployment fraud and school reopenings to the potential recall of Governor Gavin Newsom, Fi$Cal is clearly not high on most lawmakers’ priority list.

But some — including Assemblyman Rudy Salas, who chairs a committee that commissions Howle’s audits — are promising increased oversight.

“Like many Californians, I am frustrated that yet another department is experiencing delays and costing the taxpayers more money,” the Bakersfield Democrat said in an email. “We need individuals working on these projects to be focused on solutions, not excuses. I will be working closely with the state auditor to hold FI$Cal accountable because Californians are fed up.”

Transparency group cries foul

Fi$Cal’s list of critics includes a prominent transparency watchdog dedicated to disclosing government spending.

Adam Andrzejewski, CEO of Open The Books, scoffed at director Barcellona Ingenito’s claim about increased transparency. He says California is easily the worst of any state when it comes to forking over financial information.  

After seven years of having public records and sunshine requests denied, the nonprofit sued Controller Yee last year in state court.

“It shouldn’t take subpoenas and a lawsuit to force open California state checkbook spending. The controller admits to paying 49 million individual bills last year and didn’t disclose a single one,” Andrzejewski told Courthouse News.

Though he applauded the state for striving to improve the financial disclosure website, Andrzejewski notes information regarding major agencies such as the State Teachers’ Retirement System, Public Employees’ Retirement System and the Department of Corrections and Rehabilitation has been deferred thus far.

“We don’t have a lot of confidence when it comes to the controller’s office and financial reporting,” he continued.

In response to last month’s audit, a Fi$Cal spokesperson said it was focused on the finish line but was “looking forward to continuing to work with [Howle’s] office as we complete the final phase of this extraordinary project.”

In the last audit, Howle acknowledges it’s not uncommon for major state projects to stumble on “unforeseen issues” and does applaud Fi$Cal managers for acknowledging and accepting her recommendations. Nonetheless, the routine audits will continue.

“Agencies’ struggles with implementing and using FI$Cal, in addition to ongoing concerns regarding project scope reductions and significant unreported costs, represent significant risk to the state,” Howle concluded.

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