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Analyst Recommends Budgeting Pause, Oversight for Payroll IT Project

In a recent Budget and Policy Post, the state Legislative Analyst’s Office assessed the California State Payroll System modernization and offered several recommendations.

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The Legislative Analyst’s Office, which advises the Legislature on matters of finance and policy, is scrutinizing the California State Payroll System IT project and recommending a pause in budgeting and oversight from lawmakers.

The project, CSPS, originates in the State Controller’s Office (SCO), which pays state workers, but also includes the California Department of Human Resources (CalHR) and the California Department of Technology (CDT). SCO began planning a replacement for its current payroll system in 2016 and Gov. Gavin Newsom’s 2021-2022 Fiscal Year budget funds continued planning with $5.7 million for SCO and CalHR — $3.4 million of that from the General Fund — to start procurement and change management. Among the takeaways:

  • SCO requests $5.5 million, including $3.1 million from the General Fund, and seven positions to complete CDT’s four-stage Project Approval Lifecycle (PAL); CalHR requests $230,000 from the General Fund and one position. The project is now in PAL’s Stage 2 Alternatives Analysis, which calls for market research and the identification of “available technical solutions,” the LAO said in its report. After that, entities going through PAL must then recommend at least one solution to CDT for approval; and after that, set estimated project cost, schedule and scope. CDT Stage 2 approval is expected within “the next couple of months,” the LAO said, noting SCO estimates the project will finish PAL and move to development and implementation in 2022-2023.
    However, the LAO recommends the Legislature “withhold action” on budget proposals involving CSPS until CDT approves Stage 2 of the project’s PAL process, noting this documentation “will allow our office to more fully assess and recommend action” on the budget proposals. An SCO spokesperson told Techwire via email that the office agrees with the recommendations, noting the office hasn’t been told when the Stage 2 Alternatives Analysis will be approved; and while a procurement is currently open, no vendors have been chosen. LAO Senior Fiscal and Policy Analyst Brian Metzker told Techwire via email that SCO and CalHR expect to submit revised Stage 2 Alternatives Analysis documentation later this month and CDT expects to approve it “shortly thereafter” and indicated there will be sufficient time for this to be reviewed during the state’s normal budget process. (Per the state constitution, the Legislature has until June 15 — two weeks prior to the end of the fiscal year — to pass the budget.)
  • The LAO also recommends the Legislature ask questions during budget subcommittee meetings, including why SCO proposes replacing the current payroll system; what are the costs and benefits to the recommended solution; whether this is “an appropriate time to embark on such a costly project” in light of the state’s “projected out-year deficits”; and how the administration will mitigate risks and address issues “to avoid the outcome of the 21st Century Project,” CSPS’ predecessor.
    Asked how the project has been conducted to date, Metzker said: “We raise no specific issues with the planning of the project” and pointed out the CSPS IT project team “is working to mitigate project risks by undertaking more extensive planning activities, such as business opportunity analyses and market research.
    “We do, however, recommend the Legislature review the scope of this project and take actions to ensure sufficient legislative oversight going forward. The state’s experiences with projects of this complexity and cost suggest potential cost increases, schedule delays, and instances of ‘scope creep,’” he said.
  • In a project assessment, the LAO compared the project to “the change management required for the Financial Information System for California (FI$Cal) IT project,” which it noted led to the creation of the Department of FI$Cal, “with ongoing operational and training responsibilities.” Metzker said the project will necessitate “change management across state entities to train staff on how to perform payroll functions” in the new system, and to review and modify business processes, adding: “In our conversations with the State Controller’s Office (SCO) and the California Department of Human Resources, it was made clear to us that change management will be one of the main activities of the project.”
    The SCO spokesperson said the office “agrees that the change management level of effort is comparable” to FI$Cal. “However, we do not anticipate the need to create a new entity,” the spokesperson said, indicating the project will modernize a human resource management and payroll system used by around 285,000 state employees.
Theo Douglas is Assistant Managing Editor of Industry Insider — California.