Billing problems partly caused by city, official says

Monday, February 21, 2000 By ROB HOFFMAN NEWS STAFF REPORTER

ANN ARBOR - Although Ann Arbor officials originally blamed the software manufacturer, it was the city's own botched installation of a new billing system in the water department that caused many of the problems, a top city administrator now admits.

Dean Moore, the city's finance director, said city hall foul-ups are to blame for many of the problems associated with the Aquilium system, which was originally said to be at the heart of a $2.8 million deficit in the water department.

A month ago, city officials were publicly blaming Aquilium for the shortfall, uncovered in a 1998-99 audit, and were even hinting at a lawsuit. City Administrator Neal Berlin said the city was "exploring all the possibilities" when he was asked by City Council about a possible lawsuit against Aquilium.

Earlier this month, in the first sign that the city's position was changing, Berlin revealed that the shortfall in 1999 utility-billings was actually closer to $320,000.

Moore, in an interview last week, said the problems were partly due to the way the city handled the switch-over to a Windows-based software product. A consultant originally hired in 1997 to install the $526,000 program was not brought in to do most of the project management. Instead, a decision was apparently made internally to save about $100,000 by having city staff largely transfer data from a 30-year-old mainframe system.

On the other hand, Moore said, the city was led to believe by Aquilium that the transfer would be easier.

"There's been problems on both sides," he said. "The software wasn't as good as they said it would be and we didn't provide the management we should have."

Since the program was installed in June 1998, utility officials have been largely unable to view customer accounts and generate monthly financial reports. There were also widespread fears that many customers were being underbilled, overbilled or not billed at all, although the internal investigation has not uncovered any evidence of such discrepancies.

In a separate interview, Berlin said that internal problems may have played a part in the botched transfer. But to lay the blame mostly on the city would be "jumping to conclusions," he said. Within the next two weeks, Berlin plans to summarize the city's internal investigation in a memo that will go out to the City Council.

"In a process this complex, there are obviously many aspects that are affected," Berlin said. "And that's what I'm trying to put together."

Officials with Aquilium, a 30-employee company based in the Toronto area, say they are convinced the city is at fault. Of the approximately 30 communities that have bought billing systems from them so far, only Ann Arbor has experienced such widespread difficulties.

"The software works," said Chris Gadula, an executive vice president of the 6-year-old company. "We did have the appropriate resources. The most significant problem was getting enough resources from them ... In general, clients need to make sure when they enter these projects, they are taking ownership. And that involves applying resources. There is a tendency to underestimate the amount of time and commitment it will take."

Gadula, who joined the company 10 months ago, said he is not aware of promises Aquilium made to city officials before the contract was awarded in March 1997. At the time, Ann Arbor and its the 26,000-customer system was Aquilium's largest client. The company, which lost $3.1 million in 1998, replaced many of its top executives in 1999.

Moore said some of the problems might have been caught if the new billing system had been tested side-by-side with the old one, a COBOL system in use since 1969. But, he said, an Aquilium project-manager dismissed the need for parallel testing, saying the system would "run perfectly."

Gadula said he was unaware of those comments. But, he added, his company generally discourages parallel testing because of the significant differences between Aquilium and older systems. Even so, Aquilium did produce a pre-installation "gap analysis," of Ann Arbor's old data that indicated the transition between the two systems should have been smooth, he said.

Greg Galluzzi, a Texas-based consultant who monitors changes in utility-billing technology, characterizes parallel testing as "a point of argument" in the industry. "We often find that parallel testing between two very different systems is difficult to do," he said. "(Often) you spend your time trying to match something that is not in error, but rather is just different." Recent interviews and city documents have uncovered several other facts:

The software was purchased without a formal bidding process in 1997. The city received information from six of 49 potential vendors that it had queried informally. Out of those, Aquilium was selected without a formal Request For Proposal (RFP) because it "best meets our (computer system) requirements in the technical environment specified by the city," according to a report submitted to the City Council.

Staffers in the city's information-service department recommended against the purchase, saying that the city did not have the capability to support such a complex system, Moore said. It's not known why the advice was ignored. The city also had difficulty hiring new computer personnel who would have helped put the system in place, he said.

The city traced $120,000 of its 1999 losses to the billing system's failure to collect late fees. For more than a year, customers who paid an extra late charge simply got that amount credited to their next bill. Gadula said the software could have been designed to accept the late charge, but the city wanted to exclude that feature. Moore said administrators feared the customization might further complicate what was turning out to be glitch-filled transition. Internal transfers apparently accounted for six-figure overbillings in the fiscal year that ended June 30, 1998, Moore said. Those overbillings were later discovered and corrected in 1998-1999, the next fiscal year. All told, the error caused a disparity of $1.3 million between the two years - or about half the original $2.8 million deficit.

On Jan. 6, a few days after the audit was released, Standard & Poor's downgraded the city's water-system bonds to A- from A+, a demotion of two steps that makes the bonds less attractive to investors. Based on the audit, analysts were concerned that revenues were lagging behind debts by 10 percent. Ideally, utilities should be making 10-25 percent more than what they owe. The downgrading is not expected to have an immediate impact, although Moore authored a memo immediately after the audit's release suggesting a series of rate hikes over the next few years.

Link

http://aa.mlive.com/news/index.ssf?/news/stories/20000221anaquilwat.frm

-- Carl Jenkins (Somewherepress@aol.com), February 21, 2000