An annual independent financial reporting and compliance audit makes a strong case for Illinois’ politically contested enterprise resource planning (ERP) system. The report from the Illinois Auditor General, released March 30 and focused on the fiscal year ending June 30, 2016, calls out the “decentralized financial reporting process” and outlines shortfalls in need of attention.
In the seven years the audit has been conducted, it has framed the argument for a more unified reporting system several times, but the most recent iteration comes at a time when the state is in the process of putting that system into place amid some resistance.
In recent weeks, affronts from the state comptroller have amounted to millions in frozen funds and criticism over how the project is underwritten. Meanwhile, state IT officials have held their ground that the project is not only essential for better financial management, but overall security as well.
As CIO Hardik Bhatt sees it, the audit isn’t telling state technologists or the governor’s office anything they don’t already know. The lack of a unified and transparent financial system is costing money and adding unnecessary complexity to processes that should be much simpler.
What’s more, the state is a Web of some 263 financial systems across 59 agencies, according to Bhatt, and has as many as 137 tangentially related systems woven in. The status quo creates a slew of challenges, including slowing the reporting process significantly.
“One of the key findings that continue year over year is this whole untimely financial reporting. For the last five years … Illinois has been anywhere between the 46th and 50th state in terms of how long it takes us to provide a comprehensive annual financial report,” Bhatt told Government Technology.
But the findings are indicative of other problems for the state. Bhatt explained that the lack of a unified financial system boils down to consistently late payments, higher borrowing costs, ballooning interest payments and the loss of federal grant funds that might have otherwise been collected by the state.
“We actually leave a lot of money on the table from federal grants because again we are just so slow in pushing all of these things.”
When completed, the ERP will greatly improve transparency in accounting, procurement and contracting Bhatt said. For some agencies, making even simple purchases requires making entries across multiple systems, printing out a voucher and physically delivering it to the comptroller’s office for completion.
The truncated and disjointed processes open the door for both fraud and abuse of the existing system that is very difficult to detect.
“We basically have so much diffused procurement going on and each of them has their own systems, so we are losing so much on pooling procurement, on transparency — visibility of what is going on — that’s another risk area that they found,” he explained. “Because there is a lack of transparency, there is also potential for fraud and abuse. It is very hard to detect what goes on from what fund to what fund, because most of these things are still happening manually.”
Since 2011, when the report initially set the stage for the ERP business case, Bhatt said the findings have been consistently in favor of a statewide solution, despite opposition from the state’s new comptroller.
In March, Comptroller Susana Mendoza, who took office in December 2016, began calling for more transparency in the process and an evaluation of where funds were coming from.
In line with a series of critical press releases, Mendoza held some $27 million, $21.6 of which was slated for contractor payments, saying that the frozen funds “should not inhibit DOIT’s ability to pursue its core mission.”
That money remains on hold, however, until the Department of Innovation and Technology provides answers that satisfy Mendoza's call for a more open process, comptroller spokesperson Abdon Pallasch explained to Government Technology.
Pallasch went on to say that the issue does not center on whether the comptroller recognizes the need for a new system — that need, he said, is obvious. The issue is where the money comes from. But outlining any funding sources in a state two years into a budget stalemate is not as simple as pointing to a new pot of money, he said.
During a House General Services Committee hearing March 29, Mendoza testified that she was asking "simple questions" about the project, but had not received answers from the state's technology agency. Pallasch said attempts on the part of his office to have Mendoza's questions answered have had no success to this point.
But Bhatt maintains that despite what he calls politically motivated criticisms of the program, the ERP system is expected to break even in its fifth year, with between $137 to $290 million saved annually from the sixth year on. Currently, the project stands at around 25 percent spending and completion, equating to a deployment that's both on time and on budget — a feat Bhatt said is rare when it comes to ERP implementations.
In a statement from Gov. Bruce Rauner’s office, Spokesperson Eleni Demertzis called out the feud between the state’s top executive and the financial official.
"The audit finding in the report perfectly illustrates why Illinois needs to modernize our antiquated technology systems,” Demertzis said. “We continue to be baffled by Comptroller Mendoza’s decision to halt payments on technology upgrades that will bring more financial transparency and accountability to the state of Illinois. Making these upgrades will allow the Governor’s Office and every executive branch agency the ability to quickly prepare and complete accurate financial records that the people of the state deserve."