Report released 30 June 2010
WHERE ARE THE CONTROLS?
the entire report is highly recommended – available at: http://bit.ly/d6U1LE pp.57-63
The Los Angeles Unified School District (LAUSD) has been the subject of numerous reviews and newspaper articles concerning the implementation of System Applications and Products (SAP), a purchased software system. In 2003, LAUSD Board of Education (BOE) adopted the Enterprise Resource Planning initiative to replace the District’s existing system that supported payroll, time reporting, financial, human resources and supply-chain. The previous existing system was called Integrated Financial Systems (IFS). SAP is a worldwide business system used successfully in many applications.
However, in the new system, there have also been notable failures of implementation.The LAUSD payroll system supported approximately seventy-five thousand employees in classified, certificated and semi-monthly positions. The Annual Payroll in FY2009 for LAUSD was approximately $4.9 Billion. The prior systems were outdated, did not communicate with each other and were not supported by vendors.
IFS required excessive duplication of work with significant manual processing. In 2005 the BOE authorized the purchase of SAP and the use of Deloitte Consulting for the integration and implementation. SAP became part of the total systems supporting the schools. LAUSD called the new system Business Tools for Schools (BTS).
BTS consisted of three Releases:
1. Release I would include Finance (General Ledger, Funds Management, Budget Development, etc.) and be completed by July 2006.
2. Release II would go live in January 2007 and encompass Payroll and Human Resources plus other employee related modules.
3. Release III was to be implemented by the fall of 2007 and include primarily Accounts Payable and other related modules. Due to the significant issues with the Release II Payroll Implementation, Release III was delayed to a future date .
The failure of the Release II Payroll process had been well publicized and resulted in an overpayment to approximately 35,000 employees of $60 million. The primary overpayment event occurred in June 2007 when approximately 23,000 employees were overpaid nearly $25 million. In late 2009, approximately $9 million in overpayments was still owed to LAUSD by 2,400 employees. Collection activities continue. Underpayments to certain LAUSD employees were resolved.
The payroll problem resulted in ballooning the projected cost of BTS from $95 million to between $120 million and $150 million. This may or may not include additional internal support costs for administering the corrective actions and Release III Accounts Payable Implementation.
The 2009-2010 Los Angeles County Civil Grand Jury (CGJ) investigated the corrective action process and resulting impact of this major failure of the Release II Payroll Implementation. The CGJ encountered difficulties in receiving meaningful documents and responses from LAUSD. Following several failed attempts over a five-month period and the threat of a subpoena for information, LAUSD produced the documents the CGJ determined to be useful and relevant.
After holding follow-up meetings with LAUSD, the CGJ determined that LAUSD made a number of costly efforts to correct the problems and collect the overpaid amounts from employees. The CGJ made recommendations in the following areas:
• The ongoing major issues with the BTS payroll process as identified in audits from the Inspector General of LAUSD
• The lack of follow-up from the Inspector General on major audit issues
• The delay in the implementation of Release III Accounts Payable that has resulted in significant exposure to a major catastrophe from the legacy system supporting accounts payable and related modules
• The use of lessons learned in the Release III Accounts Payable implementation
• The exposure to LAUSD from further budget reductions in the Information Technology staff supporting legacy systems
• The absence of an Information Technology Steering Committee
• The absence of key management oversight and proper training processes in the Release II Payroll Implementation
As a result of the investigation of the Business Tools for Schools implementation for Payroll for Los Angeles Unified School District (LAUSD) and related issues, the 2009-2010 Los Angeles County Civil Grand Jury (CGJ) made the following recommendations:
1. LAUSD should implement an emergency plan for the support of Integrated Financial Systems (IFS), the current operating system for accounts payable.
2. LAUSD should review alternative methods to support IFS activities in case of a major failure.
3. LAUSD should review any considerations to reduce current staff within Information Technology Group (ITG) supporting IFS and review the impact of bumping from future budget reductions on this portion of ITG.
4. LAUSD should proceed with a definitive Plan to implement Release III, Accounts Payable and related modules of Business Tools for Schools (BTS) as soon as possible with appropriate oversight, planning, timing and cost estimates.
5. LAUSD should review and ensure the lessons learned from Release II implementation be actively followed in Release III implementation.
6. LAUSD should ensure proper training processes be completed for all people involved prior to the implementation of Release III Accounts Payable of BTS.
7. LAUSD should ensure proper management oversight of normal control reports during the implementation of Release III Account Payable.
8. LAUSD should designate appropriate internal upper level management to actively participate in an Information Technology Steering Committee. This group would oversee the decisions, costs, and progress on all ITG projects. This group would also be responsible for responding to audits involving LAUSD system’s projects as well as follow-up to audit recommendations. This group would possibly include the Chief Technology Officer, the Chief Financial Officer, the Chief Operating Officer, the head of Educational Activities and a member of the LAUSD Board of Education (BOE).
9. Office of the Inspector General (OIG) should review any audit with significant findings within a six-month period for compliance and response. The CGJ recommends that OIG should specifically review the four audits previously performed on the payroll system.