California’s Fi$Cal project overruns now threaten state’s credit rating, auditor warns

Many years and $918 million later, California is still struggling to bring agencies online to a unified financial management system. And now California State Auditor Elaine Howle warns that complications with the budgeting, accounting, procurement and cash management system known as the Financial Information System for California, or FI$Cal, are threatening the state’s credit rating.

In a letter addressed to Gov. Jerry Brown and the state legislature Thursday, Howle says that a survey conducted by her office showed that many entities are struggling with the financial upgrade project first started in 1995, and that 64 additional agencies and offices scheduled to begin using it this summer, as part of “the largest and most complex” phase of the project, are likely to face similar challenges.

The auditor reports that 41 of 89 state entities using FI$Cal missed financial reporting deadlines in April. The agencies now scheduled to join Fi$Cal represent a large enough portion of the state’s budget, the auditor warns, that if they miss yearend financial reporting deadlines, as others have missed monthly deadlines, it “could negatively affect credibility among investors, the public, and credit rating agencies.”

California’s 2017 credit rating is AA- in a system where AAA is the highest rating and BBB- the lowest. A downgrade of the state’s credit rating would increase how much it costs for the state to borrow money, potentially limiting economic growth and passing on additional costs to taxpayers.

The 64 agencies scheduled to join Fi$Cal represent about 90 percent of the funding FI$Cal participants receive through the state budget.

The auditor’s survey results, which include responses from 17 agencies and offices that have moved onto the new financial system, reveal that struggles to integrate with the system have often yielded poor technical results. Many, the report states, “are unsatisfied with system performance, training and documentation, and technical support.” As of June, 13 of the 17 surveyed agencies reported they missed their month-end financial reports and seven said they expect to miss year-end reporting deadlines.

The auditor’s office also surveyed some of those preparing for integration and found many who said they did not feel prepared.

Howle recommended the legislature direct Fi$Cal’s project office to include new project reporting metrics from agencies that will allow the state to realistically plan when the project will be finished. The auditor also recommended that the California Department of Technology, which is one agency responsible for oversight of Fi$Cal, submit a new project report that reflects the updated changes in cost, scope, and schedule.

The auditor’s report concludes by noting that the FI$Cal project, which has already dragged on for more than 20 years “will take more time and resources than originally planned.”