Accounting Bugs Tarnish the Golden State's Reputation

California’s rolling in cash. But its new accounting system is so plagued with errors that it may lead to investors doubting the accuracy of key metrics they use in deciding to buy its bonds.

Controller Betty Yee wants a suspension of the Fiscal Information System for California, or FI$Cal, until the bugs are fixed. Otherwise, she says, there’s a risk that state agencies may inaccurately represent revenue figures for the state’s comprehensive annual financial report, an essential document for gauging California’s fiscal standing. That could lead to auditors flagging potential misstatements in the report, which could erode investor confidence and may even lead to a rise in borrowing costs, she said.

“We want to be sure that we are representing the state’s overall fiscal health as accurately as possible,” Yee said in an interview. “It just gives investors confidence that the resources will be there.”

The troubled rollout of the system is a high-profile example of the dilemma cities and states nationwide face in trying to upgrade their antiquated technology. Even when they find the funding to modernize, complexities of government functions and integrating legacy software have led to delays and cost overruns in numerous cases.

California officials decided to replace existing budget systems among its agencies with one, FI$Cal, and hired Accenture Plc to integrate the Oracle PeopleSoft and Hyperion enterprise resources planning (ERP) program. Spokeswomen for Accenture and Oracle didn’t immediately return requests for comment.

The cost has grown to $918 million, from $600 million in 2012, according to a report from California Auditor Elaine Howle. The state’s agencies are gradually implementing the system, with a completion date set for July.

Yee warned legislators last month that if more and more departments adopt FI$Cal even as errors go unresolved, risks of inaccurate reporting rise for the 2018-2019 fiscal year. Her office, along with Howle’s, is working with the project managers to address the issues. The release of the audit for the fiscal year that ended in June has been delayed to this month partly because of the problems, Yee said. The audits generally have come in March.

“It’s like we’re trying to build the car, repair the car, and drive the car,” Yee, who stressed she has no concerns about the state’s fiscal health itself, said. “Fixing it now will save time and taxpayer money in the long run.”

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