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Unwatched, cost of state's phone billing plan spiraled

08/23/01

LISA GRACE LEDNICER

SALEM -- Lack of oversight led the state to unnecessarily spend more than $1.6 million overhauling the state government's phone billing system, auditors say.

The Department of Administrative Services overpaid contractors and paid consultants for work that wasn't needed, the secretary of state's Audits Division reported. The project, which was expanded from a Y2K phone system upgrade to a new billing system covering other services, ultimately was scaled back.

The project has cost more than $4.8 million and still isn't finished. Auditors said that's because no one in the department, which oversees the operation of more than 200 state agencies, had control over the project.

"System development is a difficult thing; it's a risky thing. To do it successfully, you have to be structured and well-managed," Neal Weatherspoon, , who conducted the audit, said Wednesday. "Each phase should be controlled and approved. That did not occur."

With the state trying to prevent Y2K computer glitches expected Jan. 1, 2000, state agencies got approval from the Department of Justice to relax competitive bidding requirements and other rules governing state contracts. Auditors said Administrative Services took advantage of that flexibility to expand the scope of the phone billing project with minimal oversight.

Mike Greenfield became department director in March 2000 and requested the audit shortly thereafter. In September 2000, Greenfield halted the expansion into other billing services because he said he couldn't get questions answered about the project's scope. That meant $1 million worth of work on the expansion was abandoned.

Greenfield said that he agreed with the audit's findings and that he has tried to tighten management practices throughout state agencies. The replacement of the state's phone billing system will be completed next month and will cost about $6.2 million.

"Someone wasn't paying attention to details, and it's difficult for me to sort out where that occurred," Greenfield said. "There were expectations around Y2K, more of an entrepreneurial approach, rather than careful standards of government."

Jon Yunker, who retired as department director in the spring of 2000, said Y2K compliance "was a huge project. . . . I don't think there was anyone who generally didn't know what was going on. Maybe there were some details people didn't know."

Other routine audits OK The state spent $113.8 million on Y2K compliance, most of it on hardware and software development, consultants and personnel to write code. Agencies experienced relatively few problems, and Weatherspoon said routine audits of Y2K costs in other departments haven't raised any red flags.

Auditors uncovered the problems in the phone billing project during an audit of Administrative Services' information resources management division, which oversees computer services for most state agencies.

Auditors recommended the agency set up a method to determine who's responsible for large computer-related projects and their responsibilities -- including creating a way to monitor the costs of a project as it goes through several phases. Auditors also suggested the agency ask the attorney general to review project contracts.

Plans to upgrade the state's phone system began in 1997, when Administrative Services officials hired a national consulting firm, AIC, to suggest how to prevent Y2K glitches from interfering with the department's ability to bill other state agencies for phone calls. The department paid the company $439,000 but rejected the upgrade it recommended.

Administrative Services then decided to build a new system to replace the old one, which tracked bills for providing phones, phone lines and paying repair technicians. It hired a contractor in January 2000, at a cost of $3.5 million, to do the work -- and add a function that would have consolidated all billing in every agency.

It was equivalent, Weatherspoon said, to a homeowner hiring a plumber to fix a leak, then deciding the kitchen needs remodeling, too. Auditors couldn't determine whether the extra function was included in the original cost.

The department "sort of had a blank checkbook on this one," Weatherspoon said.

Two contractors overpaid Auditors also discovered that Administrative Services overpaid two billing project contractors, giving them $70,000 for a month's work instead of $35,000. The contractors weren't working solely on Y2K projects, however. Department managers assigned them extra responsibilities in the state's database center when two state employees resigned unexpectedly in spring 2000. The agency should not have used expensive contract workers to fill a long-term need, auditors said.

Ann Terry, the state's chief information officer, said she has asked the Department of Justice for advice on how to get the contract mistakes resolved. The phone billing project was scaled back last fall, she said. The department has hired a quality assurance contractor to report every month on the status of the project, she said.

"We've made a lot of changes in the organization having to do with project management methodology," she said. "I think it's a healthy project at this point."

You can reach Lisa Grace Lednicer and 503-221-8234 or by e-mail at lisalednicer@news.oregonian.com.

Oregonian

-- Anonymous, August 25, 2001

Agency Year 2000 Completion Certification Report - OR
August 20, 1999

Statewide Telephone Infratructure - NMMCC/Telecom
High Risk factor for Y2K disruption

-- Anonymous, August 26, 2001