1. State Organization and Constitutional Responsibilities Complicate Management of State Operations.

The Constitution of California establishes a number of Officers directly elected by the voters. These include the Governor, Lieutenant Governor, Attorney General, Controller, Secretary of State, Treasurer, Insurance Commissioner and Superintendent of Public Instruction and four members of the State Board of Equalization. This structure has led to diffusion of accountability with diminished authority for the Governor to manage the entire operations of the State. In the past the cabinet secretaries have been given increased authority over their functions.

There are established, in state government, accounting offices at the agency and department level as well as for boards and commissions. These accounting offices have created accounts and data requirements for their specific operational needs beyond those accounts required by the State’s uniform code manual (UCM). As the size of these organizations grew with services and requirements they increasingly sought information system solutions. Systems were created, enhanced and replaced with the evolving availability of new hardware and software.

Decentralization of system designs has resulted in a proliferation of systems with different platforms and no uniform databases and little ability to exchange information. It has been estimated there are about 1800 systems which cost about $2 billion annually to operate. All the agencies continue to want system enhancements. When the Department of Information Technology began operations in 1996 there were $2.3 billion in system projects awaiting approval. Unfortunately, despite the huge cost for these systems it is still not possible to summarize data for the entire State.

It is only too evident, that the current culture of strong decentralization is out of balance. There has been a conspicuous absence of leadership and direction for state operations. All of the agencies and departments seem to do their own thing within legislative requirements. In addition, there does not appear to be any central support for those functions which are common to all agencies and departments.

California State Accounting Reporting System (CALSTARS) was created to provide the agencies of the State "with an automated organization program cost accounting system to accurately account for all revenue, expenditures, receipts, disbursements, and property of the state."

The limitations of CALSTARS as a statewide financial management system are:

b) While the 25 tables for different specific data available to each

The Controller’s disbursement system prints checks and accepts payments. It reflects the appropriation codes but carries no detailed information on the nature of the expense nor, the individual incurring it. It is not a cost accounting system as would be utilized in private business operations.

No complete uniform system of account codes exists in the State except at the UCM level. While the accounting system for the State records financial data required by law, it does not provide useful operational data to manage an organization.

The existing multiplicity of systems is the result of each agency designing systems to meet its specific functional needs. Even proposed new projects now use different platforms; for example, Oracle, Peoplesoft, SAP, all have differing architecture and data input fields. In the absence of a statewide strategic plan individual projects tend to be agency focused. "The Department of Information Technology (DOIT) is charged by statute with identifying which applications of information technology should be statewide in scope, and ensure that these applications are not developed independently or duplicated by individual state agencies."

No long-range enterprise plan has so far been developed which will over time evolve to a total statewide system. "Certain activities such as payroll/ personnel, inventory, accounting and purchasing are common to many or most state government entities". A long-range master plan for development of these systems has not been created. Such a plan should include an evaluation of the benefits versus cost of retaining existing systems so that operating costs can be saved by replacing them with more efficient and feature-rich, robust technology. In the absence of such a plan individual agency applications will continue to be retained and enhanced. The approximately 1800 disparate systems need to be considered for retention or replacement as part of the plan. Commercial off-the-shelf software systems should be included in the plan as an economic alternative to specifically designing the software for the State.

Deferral of new applications must be made to ensure that when designed, they meet the plan. Unless legislative requirement demands that a system be put on line, new applications should be deferred. This will move project IT dollars over to applications which provide economic saving or service improvement and still fit into the statewide system architecture in the long-range plan. System enhancements are prevalent throughout state government therefore, immediate action is warranted.

As mentioned above, the Governor is the manager of all state operations in the eyes of the public, even if not in reality. The organizational barriers as well as the lack of overall operating results for cost, productivity, service levels and resource utilization make running the state very difficult. Most large organizations in the private sector have a chief operating officer (COO) in addition to a chief executive officer (CEO). If the Governor had a COO operating with the cooperation of the independent constitutional officers, then the coordination of activities, sharing of resources and support would aid in meeting the State’s business objectives. With properly designed management information systems, objectives could be set and results tracked. Teamwork could be built to achieve a more successful overall enterprise. Accountability would be increased and good performance given recognition. An effective COO would enhance the performance of the Governor. Public information could be provided to share successes with the general public, especially taxpayers and voters.

Any software program must be designed around the outputs desired so that input data can be included in the design. So it is imperative that performance and results measurements be defined before any coding can be put on paper. This, of course, requires consultation with line managers to make sure the measurements are appropriate and necessary to run their operations. Measurements should include costs, efficiencies, quality of service, and program outcomes. Measurements similar to those used in other organizations and other states with the same functions allow for benchmarking in setting performance targets.

The exploding availability of on-line services on the web is creating a market for e-commerce in providing state services to the public. Every organization wants to "get with it."

A word of caution is warranted on e-commerce applications. The State needs to have the infrastructure in place to support e-commerce as well as making sure that an application fits in with the State’s overall operational and technical strategic plans. Careful consideration needs to be given to ensure that applications are not only user friendly but also capture all the necessary financial and accounting information so that necessary recording of every transaction including related performance measures are gathered on an electronic basis and not paper. A series of on-line services, which are not easy to use and do not provide the desired service, will not be utilized by the public. A good advertising program will be necessary to eliminate any confusion with existing service.

Hiring and the retention of talent for the future is vital to the development and implementation of an information technology strategy. Refer to a study done in July 1998. It has been stated that 20% of the IT positions as yet have not been filled.

Governing Magazine rates all states on the use of information systems in state operations. California received a C- in the most recent rating though California leads the world in computer and software industries. We are several decades behind the private sector in using high tech products in state government.

The State of California continues to throw away at least $1 billion every year by not taking advantage of volume discounts. This is based on the assumption that the State buys $4 billion worth of goods and services. It is also based on what the private sector has experienced as well as what the State’s experienced contracting managers have stated.

The good news is that DGS recognizes the importance of volume discounts and would like nothing better than to expand the number of contracts for the State with volume discounts. DGS is frustrated since there is no system information infrastructure in place that enables it to do so for the entire State. Adequate procurement information at the State level does not exist. No one knows how much the State buys from a specific vendor nor, how much of a specific item or type of service the State buys from a given vendor. This is because the State does not have a uniform vendor numbering system that all state organizations use. Many agencies have their own numbering system for vendors making it almost impossible at the State level to determine how much the State is buying from a specific vendor without a special costly study.

The State also does not have a uniform product identification numbering system that identifies the specific items or types of service that the State buys. The State uses Standard Industry Codes (SIC) which only provides a high level description of what is purchased. For example, the State needs to know how many dollars it is spending with Hewlett Packard and how many Pavilion 8260 computers it is buying. Without this information it is difficult to take full advantage of the potential savings that could accrue to the State from volume discounts. In effect, the State is wasting money because it does not have the system information infrastructure in place that would give the capability to contract managers to obtain volume discounts.

In addition, there are organizations in the State that contract and purchase only for themselves. For example, the University of California, State Universities, Public Employees’ Retirement System, Teachers’ Retirement System, legislative offices, Legislative Analyst Office and the Judicial organizations contract and buy independently of other State organizations. Including their purchase volumes with the State as a whole would vastly increase the potential for volume discounts.

Of course this generates the question – "How much is the State really buying?" No one knows.

It should be noted that the Department of General Services (DGS) does have contracts in place in which volume discounts are being achieved as a result of identifying purchase volumes. For the fiscal year of 1998-1999, DGS had contracts in place worth $695 million dollars that resulted in volume discounts. This must be expanded for the entire State.

It is very encouraging to see that DGS is now exploring how to simplify the purchasing process and moving away from transaction types of contracting and purchasing. This not only is a costly paper based process, but it is also results in long delivery times. The consequences is that people stockpile supplies because of the long time it takes to obtain goods using the transaction process. This is known as "just-in-case " inventory management rather than the "just-in-time" system used in industry today. Employing CMAS simplifies the ordering process and the delivery of the product is faster reducing the need to have inventory on the shelf "just-in-case." The only problem is that employees have to "shop" to obtain the best price – and this is not always being done. Additionally, at times state employees can find what they need at a cheaper price from another source.

DGS is exploring the use of business to business (B2B) purchasing systems type of e-commerce, which we feel, is in the right direction. However, a statewide system is essential, since purchasing is a common function performed by all agencies. Unless it is supported and employed throughout the State it will have only limited value. Currently the agencies purchasing systems and the Controller's systems do not work together resulting in a costly manual paper process.

The other difficulty comes about because of the variety of accounting systems and codes used by the agencies. This makes it difficult, if not impossible, for the State to implement an end-to-end electronic data interchange purchasing system, i.e., from the ordering of an item to the bill payment to the vendor without paper being involved.

Again, because the State does not have a uniform inventory management system in place, organizations have either developed their own inventory management system, or are planning to develop one, or they plan not to have an inventory management system. Consequently, items can be stored on the shelf for long periods of time in one organization, while another organization places an order from a vendor for that same item. There is no shared information available to enable an organization to use items that are sitting on the shelf of another organization’s warehouse. There does not seem to be a pervasive understanding that having items on the shelf is just like storing money on the shelf and not using it.

There is a pervasive culture in the State of "spend it or lose it." That is because the budget process being employed uses baseline data. In effect, what you spent last year is generally what you get this year, with a cost of living increase. However, when there are agency requests or legislative requirements for additional dollars, analysis is made to determine the appropriate amount of budget increase. The Department of Finance’s budget staff analyzes these requests, known as enrollment, caseload, and population budget change proposals (ECP-BCPs). This is a time- consuming process not only for the Department of Finance’s budget staff but also for the agencies. The personal knowledge of the Department of Finance’s budget staff about an organization also enters into the outcome of the final budget.

Governing Magazine says this about California’s budget process. "As in New York, the budget process itself is protracted, contentious and cumbersome, complicating the lives of many state government managers."

It is most unfortunate that the State does not have data at the activity level that permits the budget staffs to review unit costs for a specific activity, or service satisfaction level, or whether an organization accomplished its program objectives. Currently, the state does not know what it costs to deliver an individual unit of service or how good that service is being delivered. Because the State lacks a complete uniform management information system, it is virtually an impossible task for any organization to provide this kind of data. Consequently, we have not seen any attempt on the part of the State to tie funding of programs to demonstrated effectiveness and efficiency.

It should be noted that the Office Of Fiscal Services in DGS is currently testing an activity based financial system that appears to be promising, if it is utilized properly. For example, this system tracks what the DGS costs are for maintenance per square foot in buildings. This enables them to benchmark with outside industry as well as give them the financial data to determine what to charge their clients. This system, along with service satisfaction surveys, can provide DGS with measures to evaluate the successful performance of their managers in improving costs and services.

Governing Magazine, in conjunction with Syracuse University’s Maxwell School of Citizenship and Public Affairs conducted a survey in 1997 and 1998, which evaluated a state’s ability to manage its operations. There were five areas of management studied: financial management, capital management, human resources, managing for results and information technology. California received a "C-". Only the State of Alabama received a lower grade of a "D".

What does the State expect of its managers? The current budget process emphasizes and reinforces the importance of not over or under spending the budget. It causes managers to do everything they can do to hold onto employee positions. It causes managers to do everything they can to increase their budget.

Yet in talking with a great many of the managers in the State, they want to do an efficient job and provide good service. Yet they feel that the State does not recognize them or reward them on that basis. Of course the question is, how can anyone recognize managers for doing an effective management job when there is no data providing evidence that a manager has improved a unit of service, or improved a unit of cost? There is no management information system available that provides this type of data to the Governor or to the Legislature.

The Council for Excellence in Government is a national organization whose mission is improving the performance of American government. All of the Council’s 700 members, or Principals, have had both public and private leadership experiences. In March 1997, a nationwide survey was conducted by the survey research firms of Peter D. Hart and Robert M. Teeter. This was taken of a cross section of 1,003 American adults. In addition, two-focus groups, one among women and one among men, were also conducted.

In the above survey, three-quarters (76%) of Americans think that wasteful government spending is a major cause for the reduced level of confidence in government. It ranks above "elected officials pursuing their own agenda (63%) and "elected officials not keeping promises (63%) (Reference web site is excelgov.org).

The lack of accountability for improving performance through the budget process does nothing but reinforce the attitude that Americans have about the wasteful spending by government.

California should establish the position of Chief Information Officer (CIO) as an Agency Secretary and member of the Governor's Cabinet. The CIO should have the authority, subject only to the direction of the Governor, over all matters pertaining to information technology in the State. The CIO would have the authority to provide leadership, guidance and oversight of all information systems currently in use and be responsible for the design and implementation of all new systems and all enhancements to existing systems, whether they are funded internally or externally to the agency. The CIO should be given adequate resources, personnel and financial support to carry out his/her responsibilities.

The CIO should establish a Chief Information Officers' Council as the principal interagency forum to coordinate system design to most effectively meet all agency needs.

The most urgently needed effort following the Y2K project is development of an overall master plan for information technology in State operations. This effort must be based on an inventory of the myriad of existing systems and developing the plan to migrate from the present systems to the desired systems. It must utilize the most modern and cost effective technology, retain and interconnect existing systems, and replacing obsolete and costly systems when appropriate. Statewide enterprise systems should be planned to meet functional requirements that are common to all agencies, e.g., payroll, personnel, purchasing, inventory, costs and etc.

Standards, procedures, and guiding principles must be developed for IT planning to assure that systems achieve a suitable statewide IT infrastructure. On-going tactical and strategic activities at the department level must be integrated into a statewide IT vision and direction.

Definitions of system requirements must be thorough and include the needs of all levels of management and information reporting requirements to insure that inputs to systems produce the outputs required by all users. Standard and uniform terminology is imperative to statewide summaries.

It is currently in the planning stage to create statewide enterprise systems for payroll in coordination with the State Controller. Also DGS' Procurement Department has done some planning with an outside vendor on a new purchasing system. These systems need to fit into the long-range strategic plan to be utilized by all agencies and provide all the information needed in preparing financial results, budget and costs and procurement information on vendor, product, price detail.

As is the practice in most large companies in the private sector the Chief Executive Officer has many responsibilities that limits the hands-on-management of the business necessary to ensure success. Therefore, the position of Chief Operating Officer is generally used to provide the management skills on a daily basis in developing comprehensive business plans, goals, objectives, measurement targets, budgets and programs. Once the Chief Executive Officer approves the business plans the COO and his/her team of executives and managers are responsible and accountable for meeting the agreed upon targets.

The COO must be a strong leader with the ability to gain the respect and support of the agency heads. The COO must be a motivator and a team builder. The difficult challenge in the State of California is to develop a culture which brings together all the Constitutional Officer organizations working together in a coordinated effort to achieve a high level of success. This requires an understanding of political differences while striving for the common business goal of providing a high level of service at reasonable costs

The current cost accounting system is not designed to track costs or unit costs at the activity level. There is no information system that provides data such as to how many individuals are performing a specific work activity or how much it costs the State to perform a unit of work activity. We recommend that the DGS’s financial management system be evaluated to determine if it can be utilized for the entire State.