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Audit Again Calls Out FI$Cal Over Slow Transitions

State Auditor Elaine M. Howle has issued a new report to the Legislature and the governor, following up on a report from August that cited “significant risks” to the state’s finances as a result of delays in FI$Cal’s rollout.

The state auditor’s office raised a red flag again today over the progress and process of migrating large state agencies to FI$Cal, the program designed to encompass accounting, budgeting, cash management, and procurement operations into a single unified financial management system.

State Auditor Elaine M. Howle’s report to the Legislature and Gov. Gavin Newsom, released just after 9 a.m. today, updates a report the agency issued in August, which cited “significant risks” to the state’s finances as a result of FI$Cal’s rollout.

“In August,” Howle’s letter says, “we reported that many state entities that had implemented FI$Cal before fiscal year 2018–19 struggled to produce on-time financial statements from within FI$Cal and were dissatisfied with system performance, training and documentation, and technical support. We also reported that some of the 64 entities that were scheduled to begin using FI$Cal in fiscal year 2018–19 could face similar challenges.”

Now, five months later, “We are concerned that some of our previous recommendations to the FI$Cal project office (project office) and the California Department of Technology (CDT) remain unaddressed and that the State is at risk for delayed, and incomplete or inaccurate financial reporting, which may have serious statewide consequences,” Howle writes.

FI$Cal’s project office manages and oversees the system’s implementation, while CDT oversees whether the project is properly managed and on track to be completed within the estimated schedule and budget.

Under a heading that reads, “The Project Office and CDT Have Not Adequately Addressed the Concerns We Reported in August,” the report gets specific:

“State Controller records indicate that as of November 2018, there were 90 entities covered by this new policy, and 48 of them submitted late financial statements for fiscal year 2017–18. Of those 48 entities, several were more than two months late with their submissions and 20 entities had to submit estimated, rather than actual, financial statements.”
The auditor’s report notes that late financial statements increase the risk of the State producing a late Comprehensive Annual Financial Report (CAFR), which can affect the state’s finances in several important and potentially costly ways.

Howle’s report also points to state agencies’ reluctance to fully transition to the FI$Cal system because they lacked confidence in the system for critical tasks.

Moreover, since last summer, agencies’ reluctance has grown, not diminished.

“Specifically, in June 2018, 21 out of 64 entities had requested to postpone exclusively operating in FI$Cal and planned to continue using their legacy systems. However, in November 2018, the project office reported that number had increased to 43 out of 64 of those entities,” the report notes.

One reason for agencies’ reluctance, Howle writes, is “their potential inability to produce accurate and timely financial information and meet various federal requirements may threaten their access to mission critical federal funds.”
Large entities, such as the California Department of Social Services and the California Department of Education, “intend to continue to use their legacy systems after implementing FI$Cal” because of their concerns, Howle notes.
The auditor in August recommended that FI$Cal, in effect, grant a one-year waiver to agencies that were concerned about a loss of funding or a delay in publishing the CAFR. FI$Cal decided to proceed with migrating all 64 departments anyway.

Of three recommendations that the auditor made to CDT, it has not implemented two of them:

— “To ensure that stakeholders are able to make informed decisions, CDT should formally communicate any significant concerns regarding the project at the monthly steering committee meetings.” CDT’s response, as summarized in the audit report: “CDT stated it has been speaking up more by reiterating major concerns at steering committee meetings as well as by continuously discussing issues with the project office and representatives from DOF (Department of Finance), State Controller, STO (State Treasurer’s office), and DGS (Department of General Services) on a regular basis. However, we have not observed CDT sharing significant risks or issues in recent steering committee meetings.”

-- “To ensure that stakeholders receive timely information regarding project risks and issues, CDT should ensure that it meets the Statewide Information Management Manual deadline for publishing the monthly oversight reports within 10 working days of the subsequent month.” The audit report adds: “CDT indicated that it is still working toward meeting this deadline, however there is a large amount of information that it carefully verifies for accuracy every month. Since we last reported on this issue in August, CDT has submitted late reports for four out of six months.”  

FI$Cal did not respond to Techwire's request for comment this morning. CDT said it would not be able to reply by Techwire's publication deadline. 

 

Dennis Noone is Executive Editor of Industry Insider. He is a career journalist, having worked at small-town newspapers and major metropolitan dailies including USA Today in Washington, D.C.