Report 96107.2 Summary - July 1997
California State Lottery:
Information Technology Operations Need Correction and Because of Poor Scratcher Automation Decisions, It Unnecessarily Incurred Millions of Dollars in Contract Dispute CostsResults in Brief
The California State Lottery (lottery) originated with the passage of Proposition 37 in November 1984. The primary purpose of the proposition is to provide additional moneys to benefit education without the imposition of additional or increased taxes. As of June 30, 1997, the lottery projected fiscal year 1996-97 revenues of approximately $2 billion from its five on-line games and a variety of instant ticket games.
In August 1996, we issued a report on the first phase of our comprehensive performance audit focusing on the lottery's strategic planning efforts, administrative functions and expenses, mandated audit activity, and Scratcher product distribution system. The purposes of this report are to complete our comprehensive audit by examining the lottery's information technology operations, and to review the contract and lawsuit between the lottery and High Integrity Systems, Inc. (HISI). The lottery filed the lawsuit in 1993 after it terminated the contract with HISI for the Scratcher automation project.
The lottery's Information Management and Services Division (IMS division) is responsible for providing cost-effective, quality automated systems and reliable production services to the other lottery divisions. However, we found the lottery is not effectively managing its information technology operations. The IMS division does not provide the necessary information services that lottery staff need to effectively perform their jobs. Specifically, the IMS division does not use common management tools to ensure it is effectively managing its resources, does not use adequate project management techniques to ensure its new systems and programs are completed properly and on time, may not be using its staff efficiently, and does not compile the cost of its services and compare them to appropriate benchmarks. Further the lottery's Sales Inquiry System, which is its primary database, is not structured to allow lottery staff direct access to retailer sales information. Moreover, the IMS division's service request process fails to adequately meet the needs of the lottery staff in other divisions. In addition, the IMS division's Help Desk does not effectively assist lottery staff with questions and problems. Finally, the lottery has not developed a long-term strategic plan to ensure the information technology structure can support the lottery's long-term organizational goals and objectives.
During the procurement of and litigation related to the Scratcher automation project, the lottery's decisions strongly contributed to the failure of the Scratcher automation project under the terms of the original contract. Specifically, the lottery did not heed concerns raised by potential bidders about the technical specifications and timelines in the draft request for proposal, or concerns about the financial viability and necessity of the project raised by lottery staff before the contract was awarded. Further, the lottery's indecisiveness regarding various policy decisions and its inability to freeze the technical requirements for the design and implementation of the Scratcher automation system impeded HISI's progress. Similarly, a former lottery director's September 1992 decision to make the installation and implementation of the Keno game the number one priority of both lottery sales staff and GTECH Corporation, the lottery's on-line game contractor, negatively impacted HISI's ability to perform. Moreover, the lottery expanded HISI's scope of work which also lengthened HISI's implementation schedule. While the lottery identified a number of areas where HISI's system was deficient, the deficiencies could have been resolved with sufficient time and attention. Finally, we found the lottery was not aggressive in managing the lawsuit and may have been able to reach settlement much earlier. During the litigation and settlement process, the lottery incurred at least $7.5 million in contract dispute costs.
To justify its staffing levels and to ensure priority projects are completed, the IMS division should take the following actions:
· Develop unit and division annual plans. These plans should incorporate the estimated staff hours to complete all of the division's workload including periodic gaming system loads, service requests, system problem reports, monitoring major gaming contractors, operating the lottery's data center, and completing special projects.
· Implement a timekeeping system to develop a historical base for planning purposes and for tracking the completion of work.
· Implement appropriate project management techniques, including planning, tracking, oversight, and evaluation.
· Review its practices and determine ways to accomplish its work more efficiently.
To measure its performance, the IMS division should develop a benchmarking approach that includes routinely tracking its workload statistics, accumulating actual costs, and soliciting formal feedback from other divisions on a project-by-project basis.
To provide the other lottery divisions with better access to retailer sales information, the IMS division should use a consultant to develop the best solution. Also, the IMS division must consider the lottery's long-term business outlook, staff needs, the information technology strategic plan currently under development, and the cost-efficiency of the chosen solution.
To fulfill its responsibilities to the other divisions, the IMS division should implement the following improvements:
· Establishing procedures for prioritizing service requests and system problem reports that emphasize communication among management about competing priorities and consider its existing workload.
· Developing open lines of communication with other divisions to reduce discrepancies between the services provided and the requesters' original needs.
· Providing adequate training to Help Desk staff to enable them to directly resolve the majority of calls received.
· Acquiring more useful software packages for both the service request process and the Help Desk. Purchasing decisions should consider current industry standards.
· Tracking the resolution of Help Desk calls and establishing a database of troubleshooting information accessible to both Help Desk staff and other divisions.
· Tracking the types of service requests and system problem reports received, time needed for completion, and the level of satisfaction with the results.
To ensure its information technology structure can support its long-term organizational goals, the lottery should develop a long-term strategic plan for its IMS division.
To ensure the lottery does not unnecessarily incur costs of the magnitude occurring in the Scratcher automation project, the lottery should improve its procurement process by taking the following actions:
· Critically review and address concerns raised by potential bidders and lottery staff during future procurements.
· Periodically reassess the impact of the lottery's strategic direction on current and future procurements.
· Consider the lessons learned from the Scratcher automation project by attempting to resolve any future contract disputes through means other than litigation, whenever possible.
The lottery agrees with the findings and recommendations in our report and is planning to incorporate them into its efforts to streamline lottery operations, reduce costs, and improve overall effectiveness in support of its mission. In addition, the lottery will include the lessons learned through its experiences with the Scratcher automation project in its future procurements.