Funds to state jeopardized

On September 20, 2010, in News 2010, by Mark Norris

System hampers financial report, leads to errors Clint Brewer and Chas Sisk, Knoxville News Sentinel September 20, 2010 NASHVILLE — Tennessee has spent more than $135 million on a new accounting system for state government, but problems launching ‘Project Edison’ may spill over into the next governor’s administration and threaten the state’s federal funding, according […]

System hampers financial report, leads to errors

Clint Brewer and Chas Sisk, Knoxville News Sentinel
September 20, 2010

NASHVILLE — Tennessee has spent more than $135 million on a new accounting system for state government, but problems launching ‘Project Edison’ may spill over into the next governor’s administration and threaten the state’s federal funding, according to state auditors.

Public records show that state government from management to rank-and-file employees resisted the change to the new system, causing serious delays. An independent review also suggests insufficient training for state employees and an overall lack of communication last year during the Edison implementation. Gov. Phil Bredesen’s administration criticized the software vendor about the company’s commitment to the project.

The troubled launch of Edison resulted in a seven-month delay this year in the state government’s annual financial report. As a result, the state Legislature passed a $29.9 billion budget without a full set of facts concerning Tennessee’s finances, and at least one federal agency threatened to delay or withhold funding for the state’s student loan program.

The report was eventually completed, though tens of millions of dollars in accounting mistakes were caught at the last minute. Now, officials say the delay in auditing state finances may be repeated in 2011, which could again risk delay of federal funds.

Edison began in 2005 as a Bredesen administration initiative to replace more than 30 outdated payroll, accounting and vendor tracking systems in state government with one integrated system. It was a move all major players in state finance agreed was needed, but the actual implementation of Edison last year appeared troubled from the start.

State employees found errors in their paychecks, insurance and withholding. Tennessee State Employees Association Executive Director Jim Tucker in a February letter last year to John Morgan, Bredesen’s deputy governor, said state employees did not receive paychecks on their regular paydays and health benefits were suspended arbitrarily.

Communication breakdown

Eventually, state employees’ concerns made their way to the ears of the General Assembly and its appointee, state Comptroller Justin Wilson.

Wilson’s staff surveyed more than 40,000 state employees, and after negative results, the Legislature’s Fiscal Review Committee commissioned an independent study — at an additional cost of $345,000 to taxpayers — of the software’s implementation.

The report criticized the work of a 100-person team of state employees from large departments who implemented the system, saying there was poor communication and insufficient training on how to use it.

State agencies resisted change and contributed to Edison’s initial failure, according to the report.

‘The Edison challenges are generally not technology related, but rather rooted in organizational change management and business process adoption at the agency user level,’ according to the independent Gartner report issued last year.

Finance and Administration Commissioner Dave Goetz, whose department led the Edison effort, did not dispute the picture painted by the Gartner report but said he would not name names when it came to intransigence by state departments. Edison was rolled out at a time when many departments had to cut administrative staff, he said.

‘They were having to do more with fewer people,’ Goetz said. ‘I’m not trying to make excuses, but it’s just been a very difficult environment.’

Edison’s problems in 2009 went beyond employee payroll errors. According to a report delivered by the comptroller’s office to legislators in May 2009, the inability by state employees to use the new system’s human resources features threatened to ‘adversely affect the financial integrity of the state.’

Wilson’s survey also reached out to 50 fiscal directors responsible for finances across state government. The survey found that some vendors had stopped supplying state government because of late payments tied to Edison. Some fiscal directors suggested slowing down the adoption of the new system.

‘It appears there are considerable concerns among state fiscal directors with regard to the accuracy, functionality, reliability and efficiency of the financial component of the system,’ Wilson wrote in a July 8, 2009, letter to Bredesen, Goetz and members of the General Assembly obtained by The Tennessean through the state’s Open Records Act.

Before the issues of 2009 with the Edison team, Goetz saw problems with the software system’s vendor, Maximus ERP Solutions in California.

In a 2008 letter to company President David Nickel, Goetz said the project had been adequately funded and told Nickel he needed to see ‘a higher energy level and sense of commitment from you and your staff on a daily basis.’

Goetz said last week that Maximus did not do enough testing before launching the system for the state.

‘Apparently, our contractor had a philosophy that they didn’t do that,’ Goetz said. ‘You have to do it, repetitively.’

A Maximus spokesperson could not be reached for comment.

Sounding the alarm

In the trail of records tracing Tennessee’ struggles to see Edison launched, a May 5 letter this year from the U.S. Department of Education appears to have been the final straw.

The federal education department threatened to suspend millions of dollars in payments of fees and claims to the Tennessee Student Assistance Corp.

because it had not received the state’s completed single audit of all state finances.

TSAC will pay out about $156.3 million in claims this year to banks for defaults on students loans, something its staff says are federal dollars that ‘pass through’ the state agency. Another $4.8 million comes to TSAC from the federal government to cover the administration of the program.

The state missed the federal government’s March 31 deadline for the single audit. It was delayed because of its Comprehensive Annual Financial Report coming in seven months later than expected because of problems with Edison, according to records in Wilson’s office obtained through an open records request.

Approximately 40 percent of the state’s annual funding comes from the federal government — money that could be jeopardized

because of the lack of a completed audit.

A May 27 letter from Arthur Hayes, the state audit director, to Wilson identified Edison as the reason for the delays. Hayes noted the federal letter to TSAC, saying the audit delays may threaten other federal funding.

‘The federal government could, on a program by program basis, reduce or curtail federal funding, though other states have had late Single Audits in the past without such penalties,’ Hayes wrote.

Hayes also said the problems with Edison that had delayed delivery of the 2009 state audits this year would likely reoccur in 2011.

In an Aug. 9 letter to Bredesen, Wilson notes that the state’s books were closed seven months late. He noted that a $21 million ‘agency error’ was discovered in the audit numbers generated by a combination of Edison reports and reports from the older legacy accounting systems that had to be fixed, further delaying the process.

Wilson also states that the Tennessee General Assembly was forced to use two years of ‘unaudited fund balances’ to pass the 2011 budget.

In a recent interview, Wilson said the impact on federal funding of the delays to audits caused by Edison is unknown.

‘We don’t know, and I’m serious about that,’ he said. ‘Whether or not it affected any of the decisions by the federal government, we don’t know. Every year, we apply for all sorts of things, and you never know what goes into the decision.’

Edison in 2011

Some state officials insist the delays to audits caused by Edison’s slow implementation will not be a problem moving forward. Others still have concerns.

‘Yes, definitely it is a concern,’ Jim Vaden, associate executive director of TSAC, said of potential future delays. ‘It was a huge undertaking transitioning to the Edison program.’

Vaden said the TSAC program did not lose any federal money as a result of the Edison delays.

Goetz said he knew of no other departments that received letters like the one sent to TSAC. He also expressed optimism that the state’s audits would be completed on time for the 2011 budget cycle.

Some state legislators have lingering concerns. State Sen. Mark Norris said his own sense was that errors were still being made with Edison, noting that the state had overdrawn its group health insurance fund as a result of incomplete financial statements. State Sen. Bill Ketron, a member of the Fiscal Review Committee, noted that the state was receiving late fee charges because of lagging vendor and utility payments.

‘The administration has been flying blind,’ Norris said. ‘I hope that this will be cured, and if not, that will be their legacy. … It’ll be something the next administration will have to deal with.