A state agency is seeking more than $60 million to upgrade a centralized financial management system after halting botched work on the critical project last year.
The state Department of Accounting and General Services is seeking the funding from the Legislature, and received heavy criticism from some lawmakers recently after it was disclosed that $8 million of prior work by a contractor was partially or perhaps largely wasted.
Keith Regan, director of DAGS, earlier this month briefed two legislative committees on the agency’s intent to obtain money for basically starting over with the project to modernize its more than 50-year-old Financial Accounting and Management Information System.
FAMIS, as it is also known, is the state’s central and most important accounting system. It also serves state departments, and among other things is vital for payroll processing.
Some members of the Senate Ways and Means Committee questioned how much accountability there would be at DAGS with the new system upgrade project given the prior effort where a $17 million contract with a technology services firm was terminated in March after the vendor received about $8 million for largely or partially unusable work.
“We don’t hold enough people in state government accountable as we spend the people’s money willy-nilly,” Sen. Donna Mercado Kim (D, Kalihi-Fort Shafter-Red Hill) said during the Jan. 9 briefing. “$8 million? Come on. … Now you want us to entrust you with $60 million, and at what point with the $60 million are you going to tell us that things aren’t working?”
Regan, who on Jan. 8 also briefed the House Finance Committee on the initiative, tried to assure both committees overseeing budget appropriations that valuable, though costly, lessons had been learned from the prior aborted work and that success would result this time around.
DAGS, in 2020 under then-director Curt Otaguro and the administration of then-Gov. David Ige, sought a vendor for the work and in 2021 selected the firm invenioLSI for the $17 million contract funded by federal coronavirus pandemic recovery aid.
Regan was appointed to head DAGS in December 2022 by Gov. Josh Green, and began reviewing monthly independent verification and validation reports on the project produced by another contractor, BerryDunn.
The BerryDunn assessments showed numerous deficiencies and concerns with the project, including the quality and pace of work.
“Key initial (project) deliverables have either not been delivered by LSI or have been delivered and not been approved by the State on time,” BerryDunn stated in one report.
In March, a committee made up of Regan, state Chief Information Officer Douglas Murdock and state Budget and Finance Director Luis Salaveria decided to cancel the contract.
Murdock told the Ways and Means Committee that the system upgrade contractor was fired for convenience, instead of for cause, because the state shared some responsibility for the troubled project.
For instance, there weren’t enough state personnel with sufficient knowledge to adequately help the contractor deliver what was sought, Murdock told the committee.
Regan also said there needed to be more engagement with various departments as end users of the system.
Sen. Donovan Dela Cruz, Ways and Means Committee chair, asked Regan if the money being sought now to modernize the financial management system is a resumption of work or starting over from scratch.
Regan said it’s more starting over.
“That’s an expensive lesson,” Dela Cruz said.
“It is,” replied Regan. “What we’ve done is we’ve taken the information that we’ve gathered from that (terminated project) experience and made the changes necessary to the overall project as we move forward.”
At least a couple of lawmakers compared trouble with the financial management system upgrade to a bungled tax system modernization initiative and a badly built Honolulu airport hangar led by other state agencies in recent years.
Dela Cruz (D, Mililani-Wahiawa-Whitmore Village) and a few other senators questioned the decision to not pursue a return of at least some of the $8 million.
“If they don’t fulfill their obligation, then we get back the $8 million,” said Sen. Kurt Fevella (R, Ewa Beach-Ocean Pointe-Iroquois Point).
Dela Cruz said not trying to recover some of the expense sends a bad message to anybody wanting to do business with the state.
“They think: Eh you know what, I don’t have to produce a product. I’m going to get paid, and I can walk away — versus if you do business with the state and you don’t deliver your product there’s consequences,” Dela Cruz said.
Kim suggested that someone, in particular Murdock as the state’s project manager for the aborted work, be fired.
Murdock disagreed that the failed job was his fault, and said other variables caused the project to fail.
Murdock also told the Senate committee that some of the prior work is useful going forward.
“We do have work product that we got,” he said. “It wasn’t $8 million completely wasted.”
Rep. Kyle Yamashita, chair of the House Finance Committee, told Regan that he was frustrated by what happened with the prior contract, and asked Regan what kind of assurance could be given that the new effort would succeed.
“We cannot afford to fail,” Regan responded. “This keeps me up at night. I don’t want to be in a place where we can’t process checks, we can’t pay vendors, we can’t make payroll because we don’t have a system that can process checks. … Investing in this system I think is going to be critical.”
DAGS is requesting a mix of appropriations to help with the task, including $1.65 million to hire consultants who can do some DAGS work that frees up agency staff with expertise to help with the financial system upgrade.
Another $5 million is being sought for parts of the project that include digitizing paper-based forms and implementing organizational change management. A $60 million appropriation request still to be formally made would take care of mostly software upgrades over the next 18 months.
Regan said a contractor for the work should be sought in the fall through competitive bidding.
