The State Auditor’s Office expressed “urgent concerns” Tuesday relating to the Financial Information System for California (FI$Cal), the state’s central system for accounting, budgeting, cash management and procurement.

The new report, issued by State Auditor Elaine M. Howle and directed to the Legislature and Gov. Gavin Newsom, cites concerns that FI$Cal costs too much, delivers less than promised, lacks essential oversight and could be imperiling the state’s creditworthiness.

The auditor’s report says FI$Cal’s updated project plan continues a 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.”

It also faults the California Department of Technology (CDT) for inconsistently evaluating FI$Cal’s progress, insufficiently overseeing the project, and failing to fully follow some recommendations from previous reports from the State Auditor’s Office, which functions as a government watchdog.

Neither FI$Cal nor CDT provided comment to Techwire by Tuesday’s deadline.

FI$Cal was created in 2007, initially pitched as a $1.6 billion project that would centralize, manage and streamline state finances. Among the initial contractors were Accenture and IBM, and it currently runs with PeopleSoft (Oracle) and Hyperion. The project is managed jointly by the State Controller’s Office, the State Treasurer’s Office and the directors of the departments of Finance and General Services. It was formally designated a department of state government in 2016 and has been led since July 2016 by Director Miriam Barcellona Ingenito.

The audit report says FI$Cal’s latest plan update (Special Project Report 8, issued Aug. 21) fails to guarantee that oversight will continue until the delivery of certain features, described as “key functionalities” in project documentation. The update also sets an aggressive schedule for completion — July 2020 — that is “already proving unrealistic.”

“Finally, the project’s financial documentation understates the true cost of FI$Cal,” the audit report notes.

Because FI$Cal is so essential to state finances, any flaws or shortcomings in the system have ramifications beyond California’s boundaries: Late or incomplete financial reporting done through FI$Cal can affect investors’ perceptions about the state’s finances, which can harm its credit rating and increase the cost of borrowing money.

Howle’s report is broken into sections, each addressing a different point:

The Revised Project Plan Will Result in the Premature End of the FI$Cal Project Before the System Is Fully Established and Operational

The Aggressive Project Schedule Continues the Pattern of Unrealistic Timelines That Encourages Compromises in the Development Process

FI$Cal’s Current Project Plan Update Obscures the True Cost of the System’s Development and Adoption

The Newest FI$Cal Project Plan Update Prematurely Eliminates Key Oversight Components

The State’s Inability to Use FI$Cal as a Reliable Financial Reporting Tool May Lead to Increased Borrowing Costs

The report concludes with the following recommendations:

“To ensure delivery of key features and greater transparency of project costs, the Legislature should direct CDT and the project office to create a new, ninth project plan update. The update should include, at a minimum the following:

• A budget detailing additional time and costs for the remaining development and implementation of key features deferred beyond June 2020 currently classified in project documentation as ‘maintenance and operations.’

• A project timeline allowing sufficient time to stabilize current system functionality and complete the transition from existing business processes.

• A budget that includes ongoing funding for oversight until the state controller produces the state’s annual financial statements exclusively using the FI$Cal system. To capture the complete costs of the FI$Cal project, the Legislature should also require the project office — in coordination with entities implementing FI$Cal — to report to the Legislature on all unanticipated costs of the project, such as staffing.”

Howle’s report also advises that the FI$Cal Project Office arrange for oversight to continue until the state controller publishes the state’s annual financial statements exclusively using the FI$Cal system.

FI$Cal by the Numbers*

Manages more than $2 trillion in banking activities and over $300 billion in budgetary expenditure for all departments

Accounts for about $500 billion in accounting transactions for 152 state entities

Has about 20,000 end users and over 12 terabytes of data

Is used by 97,000 vendors to sell goods and services to the state of California

*Source: FI$Cal Director Miriam Barcellona Ingenito

Editor's note: A change was made to clarify the role of vendors.

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