Report Number: 2016-125.2
The University of California
Office of the President
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August 7, 2017
Ms. Elaine Howle
California State Auditor
621 Capitol Mall, Suite 1200
Sacramento, CA 95814
State Auditor Howle:
Thank you for the opportunity to respond to the recommendation made to the Board of Regents in the draft audit report on UCPath and IT contracting. The Regents welcome this constructive input on oversight of IT projects at the university. Please find our response to the recommendation below.
To ensure that they can exercise necessary oversight for the university's significant IT projects, the regents should develop by December 2017 status reporting standards for the Office of the President and all university locations to follow. Such reporting standards should apply to all university IT projects more than a specified cost and, at a minimum, should establish the following:
By December 2017, the Regents will implement reporting standards for significant system wide IT projects based on a dollar threshold mutually agreed upon with UCOP. These standards will require oral or written updates at least three times per calendar year. The standards will also establish the types of required disclosures relating to changes in scope, projected costs and schedule, as well as significant project risks and related mitigation actions.
Chair, UC Board of Regents
Chair, Compliance and Audit Committee
August 7, 2017
Ms. Elaine M. Howle
California State Auditor
621 Capitol Mall, Suite 1200
Sacramento, California 95814
State Auditor Howle:
I write in response to your draft audit report University of California Office of the President — Contracted Employees and Contracting Practices, as it pertains to UCPath and information technology projects. The recommendations are helpful and constructive, and align with our proactive efforts to continually improve UC’s operations, policies and transparency to the Legislature and the public at large.
Our responses to specific recommendations are in the attachment to this letter, but I would like to take this opportunity to provide important information about UCPath, one of the main projects discussed in the audit. The University launched UCPath in 2011 to modernize and standardize its payroll system for more than 190,000 UC employees at 11 locations.
When I arrived at UC in September of 2013, UCPath was already well underway. At that time and as I do now, I view it as a necessary project to standardize UC’s business practices, improve accuracy and service quality, and create efficiencies across our system – and not necessarily as a tool for generating immediate savings.
I would like to emphasize some important context that speaks to the implementation and effectiveness of UC Path:
I have complete confidence in UC’s ability to continue successful implementation of UCPath, a necessary project with significant, expansive, and long-term benefits to the University. As with any extremely complex undertaking, we are constantly finding ways to improve and be more efficient. That is why we welcome your recommendations and appreciate the time and diligence your staff spent in identifying ways in which we might further our substantial progress.
Yours very truly,
Response - CSA UCPath and IT Projects Recommendations
Responses to CSA UCPath and IT Projects Recommendations
UCOP will provide project sponsors and managers with guidelines for reporting standards and project risk management practices to formalize what is currently an informal practice. By December 2017, UC will develop cost reporting guidelines for UCPath and large systemwide projects/programs with budgets of $25M or greater. The guidelines will include cost reporting direction.
UCOP agrees that there are opportunities to strengthen and improve the project management approach for systemwide projects over $25M and will develop guidelines for IT project development by June 2018. All projects can benefit from the discipline and rigor contained in best practices; however, best practice in one context and at one moment in the process might not be applicable in another.
We disagree with statements made by CSA that IV&V practices should be run throughout any and every systemwide program. This would create a parallel management structure to the program, which would add cost and complexity while diluting the effectiveness of such a function. It is our current and proposed continued practice to use diligent governance as a way to identify and bring in IV&V third-parties for specific topics and situations as appropriate or necessary.
UCOP agrees with CSA’s conclusion that our campuses follow established vendor payment practices. By December 2017, we will build upon the current practice by establishing a requirement for each large IT project of $25M or greater to produce a “deliverable expectations document.” We will review the State’s management framework to inform the development of this required document.
To provide clarity and perspective, we are commenting on the response from the Office of the President. The numbers below correspond to the numbers we have placed in the margin of the Office of the President’s response.
Although the university president asserts in her response that the university spends $100 million annually for manual rework and error corrections for the legacy payroll system, we were unable to substantiate the Office of the President’s claim that UCPath will result in savings. In August 2017 the Office of the President sent us an email asserting that the elimination of manual rework would result in annual savings of $100 million. It based this assertion on a 2010 consultant study that formed the basis of its 2011 business case for the UCPath project and its original estimate that UCPath would result in savings of $753 million. In addition, the Office of the President claims that the retirement of the university’s payroll legacy system will result in savings of $13 million annually based on its 2011 business case. The Office of the President requested that we include these estimated savings in Figure 5. However, because the Office of the President stated that it no longer believed that UCPath would achieve the savings of $753 million and because it was unable to demonstrate that its new savings assertions would result in an actual reduction of university staff, we were unable to conclude that any savings would materialize.
Further, the Office of the President asserted that additional savings would result from its reduction of the projected staffing of the UCPath center from 568 positions to 440 positions, as well as its expectation of lower than projected salary levels for the staff filling the 440 positions. The Office of the President requested that we also add this claimed savings to Figure 5. However, we did not do so because the 2017 status cost of $130 million for “UCPath Center facility, equipment, and operations” in is already based on the projected staffing level of 440 positions at the lower staffing cost, during fiscal year 2018–19, which is when the Office of the President projects that the UCPath Center will be fully staffed. Therefore, we stand by Figure 5 as it is presented.
The Office of the President overstates the UCPath project’s level of communication with the regents and the project’s governance. As noted here, our review of the Office of the President’s 79 communications to the regents determined that only five status updates provided the regents with substantial information about UCPath’s status, cost, or schedule. We display those five status updates, along with an additional two updates and a financing request in Figure 6. The remaining 74 of the 79 communications either mentioned UCPath in relation to another issue or did not provide any substantive information on the project. Further, it was not until July 2017 that the Office of the President recognized the regents’ role in governance and expanded the project’s governance approach to include communicating critical decisions to the regents as we describe here. However, as we also note, the expanded governance approach does not go far enough in engaging the regents in decision making to truly allow them to fulfill their oversight role.
Although the Office of the President correctly acknowledges that our recommendations, including the use of IV&V, are best practices, it incorrectly concludes that IV&V would create a parallel management structure and add complexity. IV&V, when properly employed, helps to ensure that an IT system will perform as intended and meet its users’ needs, as well as provide an early warning of process and technical discrepancies, and problems that may go undetected or be detected too late. Further, our IT project management expert indicates the benefits that IV&V provides generally outweigh its cost. Given UCPath’s size, complexity, and risk, our IT project management expert believes that it would be prudent for the university to employ IV&V to mitigate weaknesses the Office of the President has already displayed in its project management of UCPath. Moreover, according to our expert, the Office of the President’s current and proposed continued practice to employ “IV&V third parties for specific topics and situations” does not represent the best practice definition of IV&V. As noted here, our IT project management expert concluded that the Office of the President’s approach results in oversight that is not equivalent to IV&V, which provides a more robust analysis of technical activities, and is embedded in the project as opposed to occurring periodically.
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