The sprawling $1.06 billion program, formally initiated in 2007 after two years of planning, was envisioned as an integrated system for accounting, budgeting, cash management and procurement for state government. But it’s been beset by budget overruns and missed deadlines, and state watchdog agencies including the State Auditor and the Legislative Analyst’s Office have issued numerous reports about the ramifications of these issues.
FI$Cal is governed by a steering committee made up of representatives from the State Controller, the State Treasurer’s Office, the Department of Finance and the Department of General Services. FI$Cal’s project office handles day-to-day operations, and the California Department of Technology (CDT) provides general oversight.
The auditor’s new report, headlined “New High-Risk Issue,” states that the rocky transition from state agencies’ individual financial ledgers to the unified FI$Cal system “has diminished the state’s financial reporting and accountability and could lead to increased borrowing costs.”
“Since numerous state entities began implementing FI$Cal, they have struggled to submit timely data for the state’s annual financial statements, an issue that could ultimately limit the state’s ability to sell bonds without increased borrowing costs,” the auditor’s report says. “Additionally, state agencies have incurred tens of millions of dollars in costs to implement FI$Cal. Finally, the FI$Cal project will lack key functionality when the project ends because of reductions in the project’s scope over the last few years, and the current project plan update may eliminate key oversight before the FI$Cal system is complete. For these reasons, the efficiency and effectiveness of the state’s ability to report on its finances is an issue of significant risk to the state.
The new warning from Auditor Elaine M. Howle largely echoes recent reports from her department as well as from the state Legislative Analyst’s Office. The common themes are:
- FI$Cal is so complex and time-consuming that some departments haven’t adopted it, and some of those that have are still maintaining their own legacy systems as well.
- The parameters of the project have changed eight times in recent years, with criteria for success shifting.
- These delays and shifting expectations have undermined the timeliness and accuracy of the state’s Comprehensive Annual Financial Report (CAFR) — and that, the Auditor’s report says, could result in a lower credit rating — and thus cost the state millions of dollars in borrowing costs for funds used in school and infrastructure, among other things.
“The concerns in today’s report were basically already raised in what they posted in December,” the spokesperson said, adding the following statement:
“The focus of the Department of FI$Cal has always been delivering a quality information technology product for the state of California and assisting our end users in managing the changes they experience to their day-to-day business processes as they learn to use the FI$Cal system. Today, FI$Cal serves as the departmental accounting system for 152 departments and more than 18,000 users processing $305 billion in expenditures each year. The State Treasurer’s Office functionality handles about $2 trillion in state government banking transactions annually. In addition, our Open FI$Cal website allows the public to view expenditure data for each department in the FI$Cal system, increasing state transparency. In 2020, we will continue to focus on our end users and on delivering the final pieces of functionality that will enable FI$Cal to produce the cash book of record when the State Controller’s Office retires their legacy system.”
Thursday’s report also notes that as the cost projections for FI$Cal implementation have grown over the years — from $617 million in 2012 to the current $1.06 billion — key features have been removed. And with the scheduled June completion of the transition, the Auditor’s report raises concerns about oversight once that date passes.
“In our August 2018 monitoring report … we identified more than $10.5 million in contractor costs that state agencies incurred when transitioning to FI$Cal,” the auditor’s report says. “Since that report, we have identified nine agencies that received approval for additional staff in fiscal year 2019-20 because of their FI$Cal transitions. According to budget documentation from Finance, these agencies anticipate $8.2 million in additional staffing and operational expenses related to FI$Cal. Further, the LAO estimated that this total increased by $1.5 million for other FI$Cal-related activities and that the nine agencies anticipate spending an additional $9.2 million on FI$Cal staffing in fiscal year 2020–21.”
The report continues: “These FI$Cal-related costs are largely the result of the agencies’ need for increased staff time and external contractors. For example, State Controller staff explained that under FI$Cal, some transactions take several hours for staff to process that took less than an hour under the previous system. Similarly, Employment Development Department staff stated that every FI$Cal function — such as transferring cash to fund daily unemployment insurance benefits — requires similar or increased staff involvement compared to the previous system. Our previous monitoring reports, Finance documentation, the LAO’s estimates, and the agencies’ internal estimates indicate that state agencies could accumulate more than $42 million in additional costs because of FI$Cal’s implementation. … These costs were or will be absorbed into the budgets of the respective agencies.”
