Auditor Finds 'Significant' Risks, Costs With FI$Cal Rollout

Update: This story was updated at 11:45 a.m. Friday to include a comment from FI$Cal Director Miriam Barcellona Ingenito.

Ongoing problems with the state government's adoption of the Financial Information System for California could, if not addressed, result in "significant" financial risk to the state, warns a report issued Thursday by State Auditor Elaine M. Howle.

The system, known as FI$Cal, was designed to consolidate dozens of state government accounting functions into one mega-system, with agencies' adoption phased in over time. The problem: The adoption is beset by technical snags — and, according to Howle's report, doesn't seem to be getting better despite a series of reports from her agency flagging the problems across the $900 million-plus system.

The financial risk to the state could come in a couple of ways:

— Individual departments' inability to finish financial reports in time for inclusion in the state's overall Comprehensive Annual Financial Report (CAFR) could make the CAFR either late to be released or require followup revisions. Either could hurt the state's credit rating, which in turn could shake the faith of bondholders, stakeholders and the public.

— Some agencies' failure to transition to the FI$Cal system could endanger their eligibility to receive "mission-critical federal funds."

— Most agencies reported to the auditor that they have insufficient funds or staff to fully implement FI$Cal into their operations, which is delaying its adoption. 

FI$Cal Director Miriam Barcellona Ingenito issued this statement today in response to the report: 

"On July 9, Department of FI$Cal successfully onboarded the final group of departments scheduled to enter the system. There are now 152 state entities and approximately 20,000 end users transacting in the system. FI$Cal serves the 5^th largest economy in the world, and captures $293 billion of California’s state budgetary expenditures. Starting in October 2018, the system will handle more than $2 trillion in cash management transactions." 

One of the problems Howle cites is the difficulty faced by departments in producing routine monthly accounting reports.

And a new deadline looms Monday: "For fiscal year 2017–18, the State Controller’s deadline to receive all entities’ annual financial statements is August 20, 2018," the report notes. "However, the challenges entities face in producing timely year‑end financial statements may prevent them from meeting the State Controller’s deadline."

Howle's report, which includes multiple charts and sections, further notes that:

— "As of June 2018, 13 of the 17 entities we surveyed, as well as three entities for which DGS (Department of General Services) provides accounting and budgeting services, did not produce month‑end financial statements on time."

— "Seven entities said that they do not expect to submit on‑time fiscal year 2017-18 financial statements to the State Controller using FI$Cal.

— "FI$Cal’s June 2018 steering committee report shows that 41 of 89 entities currently using FI$Cal for their accounting functions did not fully complete their procedures to prepare month‑end financial statements for April 2018, with nearly half of these entities reporting an inability to produce financial statements for any month since July 2017 — the first month of the fiscal year."

Problems with the month-end reports have dated back to 2014 in some cases, the audit says.

Another key problem area cited in the audit is with the technology itself and the support for those who must use it.

"Specifically, some entities noted that FI$Cal’s report generation is particularly slow and can be time‑consuming for staff," the audit report says. "One department asserted that staff sometimes use the system during the evenings because FI$Cal’s general processing time is especially slow during work hours. Additionally, many entity staff indicated that they have often experienced unexpected system timeouts in which the system becomes unresponsive or logs the user out. Some staff who experienced these system timeouts reported that they must then invest more time repeating their work because FI$Cal often does not allow users to save their progress. The project’s chief deputy noted that the project office is aware of these issues and is working on addressing them."

Techwire sought comment from FI$Cal and will update this story if that is provided.

In bullet points, Howle's report notes that:

— In‑person and online training is "generic and does not guide staff through real-world operations" and that it "lacks guidance for troubleshooting."

— User documentation is "not sufficiently detailed," "does not always reflect system changes," and "lacks guidance for troubleshooting."

— Technical support "sometimes closes out users' requests for assistance without resolving the problems that generated them," and "does not provide entities with timely responses to request for assistance."

And the audit includes this warning: "Our IT expert indicated that if the project office does not address these issues, the State will have to rely more extensively on external contractors for support after the project is complete, which will likely cost the State more than if the project office provided adequate training and documentation during implementation."

State staffers told auditors that they worried that FI$Cal’s system performance — such as the system speed and users’ transaction time — will decline when the project office implements 64 additional entities in the July 2018 release. Some entities were also concerned that the already‑strained technical support they currently receive would only worsen.

"... FI$Cal is intended to eliminate fragmented reporting, automate manual processes, and streamline various other business processes, but the entities we surveyed reported otherwise," the audit says. "Most of the entities we surveyed reported concerns with inadequate staff resources and the increase in workload due to FI$Cal. Fourteen of the 17 entities we surveyed said that they either needed additional staff resources, redirected existing staff, hired temporary staff, or worked large amounts of overtime to use FI$Cal."

The effects of the problems could be far-reaching, Howle's report says.

"Further contributing to increased workload, some entities reported that they continued to use their legacy systems alongside FI$Cal to process payments to vendors, complete month‑end transactions, and meet federal reporting requirements. For example, State Parks reported that it continued to use its legacy system due to FI$Cal‑related delays in processing payments to its vendors, which in accordance with state law, must be met in order to prevent hardship to its vendors, avoid closure of parks statewide, and prevent penalty payments to the vendors."

Looking ahead, the report cites a caution: "Based on conclusions in our prior reports and the results of our recent survey, we continue to be concerned about the success of the July 2018 FI$Cal release. The concerns raised by entities already using FI$Cal and their inabilities to produce financial statements on time, as well as uncertainties voiced by those entities scheduled for the July 2018 release whom we surveyed, suggest that the issues described in this report have the potential to be magnified and will continue into fiscal year 2018-19."

And agencies that have already begun using FI$Cal have been paying the price.

"For example, the Department of Fish and Wildlife — which implemented FI$Cal prior to 2018 — cited system limitations and technical issues as reasons it was unable to bill for state or federal reimbursements, and it had to obtain a $50 million loan in February 2018 from the State’s General Fund to maintain operations until it received reimbursements."

The report also raises concerns about the California Department of Technology's oversight of the project: "CDT failed to provide stakeholders with timely information before key project decisions," says the subhead on one section of Howle's report.

"As the oversight entity for the State’s information technology projects and a member of the FI$Cal steering committee, CDT has a key role in overseeing the FI$Cal project and informing stakeholders of its concerns. However, in the two steering committee meetings in June that led up to this decision, the CDT representative did not share any specific information about its significant concerns when oversight entities were asked to comment. Instead, the representative indicated that CDT fully supported the decision to proceed with the July 2018 release."

Howle concludes with recommendations:

— "FI$Cal leaders and oversight entities must address project risks and develop a realistic timeline" for adoption.

— The Legislature should require the project office to provide detailed metrics annually about system failures, unplanned tech outages, use of legacy systems and other data points.

— "Within 30 days, the project office should consider postponing to the following fiscal year state entities whose migration to FI$Cal in fiscal year 2018-19 could cause a loss of federal funding or a delay in publishing the State’s CAFR. The State Controller, DOF (Department of Finance), and the project office should meet in September 2018 to discuss the status of delinquent entity financial statements and develop corrective measures to ensure that the CAFR is produced with timeliness and accuracy."

 "CDT should formally communicate any significant concerns regarding the project at the monthly steering committee meetings."

Tribune News Service contributed to this report.