County blew $38 million: Here's what went wrong

The managers of King County's unfinished $38 million financial computer system didn't take into account basic computer and business procedures, forced part of the system online before it was ready, and spent the rest of their budget trying to fix problems that followed, leading to the cancellation of the project last month.

County records and interviews with the people in charge of the Financial Systems Replacement Program (FSRP) show that the project to replace the county's ancient accounting and payroll systems failed mostly because of delays and cost overruns in one of its components, a payroll system for the county's 19,000 employees.

In the end, the county's investment - including an extra $3.7 million approved this week to shut down the project - will only return a payroll system for a third of the employees.

A bank of computers and software that would have gone online this month sit idle on the 24th floor of the Key Tower; boxes of unfinished records lie uncatalogued a few blocks west. All will be mothballed until the county figures out how to revive the rest of the canceled system.

Managers of the payroll project and the county Finance Department defend their work, saying that they made the right decisions and managed to install a complicated payroll system on time, a rare feat in the industry. But records and interviews show that the county rushed the installation of the first part of that system, serving about 6,000 employees, despite evidence that important features were not finished and knowledge that people in critical jobs were not trained to use it.

E-mails and consultants' progress reports at the county also show that the people in charge of the payroll project, and of the whole computer project in general, refused to acknowledge for most of 1999 that there was a crisis, despite thousands of errors in paychecks produced by the new system after it went online.

They also ignored detailed written warnings in May from the county auditor, in July from Chief Accountant Rudy Caluza and in October from a consultant hired by the council to keep track of the project. All of them said serious problems with implementation of the payroll system threatened the rest of the project.

Instead, project managers at the county and their chief consultant on the project, the accounting firm KPMG, chose to push back some deadlines and increasingly rely on expensive consultants - some earning more than $300 an hour - to fix bugs, train employees and, eventually, to run part of the county's payroll.

By the end of 1999, the county had practically drained its budget for the entire program, forcing King County Executive Ron Sims to cancel the project last month.

Those managers, however, say they did the best they could under extremely difficult circumstances, and managed to install a complicated payroll system in time to beat Year 2000 bugs in the old software. They also said most of the problems in payroll, then and now, are from human mistakes, not software or design errors.

"I think the system needed to be implemented, and it is paying 6,000 employees every two weeks," said Acting Finance Director John Amos.

Amos, former Finance Director Brad Duerr, former payroll project manager Cindy Lee and a representative from KPMG all said that what seem like excessive expenditures are actually the real costs of installing a new system and changing the way people do business with it.

"You have to ask whether the original budget was sufficient," said Peter Julicher, a director at KPMG.

"This is really about money, not about incompetent work or about poor requirements, or bad business-process definitions," Lee said. "It's about, did we have enough money to do all of what we had to do?"

Move to modernize system

Since the court-mandated merger of King County with the old Metro agency in 1996, agencies and employees have used separate computer systems for finance and payroll, some using 20-year-old software.

In 1997, the county set out to replace those systems, selling $32.7 million in councilmanic bonds, which the council can issue without a vote of the people and then pay off from the general fund.

In December 1997, county administrators chose a software package from PeopleSoft, based in Pleasanton, Calif., to handle payroll for both county and Metro employees.

A year later, the county decided to buy an accounting package from SAP, based in Walldorf, Germany, to run general finances for both Metro and King County. In May 1999, the German firm BrightStar was hired to manage that side of the project.

In April 1998, the county hired KPMG to do the project management for the entire computer replacement. That involved reviewing budgets and schedules and preparing regular progress reports.

The schedules for the two projects were separate at first. Because of Y2K problems with the old computer for the former Metro employees, payroll would replace that system by June 11, 1999. The rest of the county's employees would be switched to the system by September 1999.

The finance package would go online by May 2000, since it depended on accurate data and other information from the payroll side to function properly.

Though there were no obvious problems with either change in 1998, a May 1999 audit of technology projects by the King County auditor suggested the project didn't have detailed cost estimates. That meant it "had a high level of risk with regard to being able to complete the project within the stated budget," according to Harriet Richardson, a county auditor.

Tests, little training

Through much of 1998 and part of 1999, the payroll-project team, led by Lee, worked on transferring data from the older county computers to the new PeopleSoft program, and testing to see how the program behaved. They were also responsible for getting county employees trained to use the system.

As the deadline of June 1999 approached, the team scrambled to finish that work. By late May, payroll team members had done six practice runs with the PeopleSoft package, comparing the results with the old software. It was about 98 percent accurate, Lee said. Amos and Duerr joined Lee in saying they thought the program was ready.

The people working on the payroll say that in the months before going live, they had few contacts with people running the project and that tests of the software didn't include all deductions taken from most checks. Most importantly, their staff was not getting training on the PeopleSoft system. Even the five people who would process the actual checks in the end had not been trained.

"When we became vocal about it, they asked us to come in on a weekend (for training)," said Sue Constable, an accounting technician at the county. "They had us do menial jobs like cutting and pasting paper."

Caluza, chief accountant at the time and ultimately in charge of payroll for county employees, said he told Lee he was concerned about going live. Lee now says that if Caluza had concerns, he didn't tell her. But she said she knew people were not trained. She felt that her project team, which included people borrowed from the payroll department, would be able to help process payroll and teach the staff by doing.

"The efforts were made to not necessarily train them but to mitigate the risk," Lee said. "We'd help them run their payroll, we'd help them do research . . . the idea was to go live and then to provide support."

Immediate headaches

On June 11, the county switched 6,000 employees to the PeopleSoft system. Within hours, people knew something was wrong.

"We were overwhelmed," Caluza said. "We couldn't balance payroll; we couldn't determine retirement benefits."

Caluza said his staff worked 12 to 18 hours of overtime per person that week to correct errors before checks went out.

Even so, once they received their checks, employees flooded payroll phone lines and e-mail to complain about mistakes. The payroll system had sent direct deposits to accounts that didn't exist, retirement accruals were wrong, child-support payments didn't get to their destinations. An inventory of the errors filled more than six pages.

Still, Lee felt these were expected.

"We are live with PS (PeopleSoft) and it's going. We had a few problems, but all were human errors. It's a terrific system, and I just love it," Lee wrote in a June 29, 1999, e-mail to a PeopleSoft representative.

Caluza didn't think so. After three payroll cycles, on July 26 he sent a confidential memo to Duerr and Amos outlining problems. He felt many of these were the result of poor planning and showed that the software package and the team running it weren't ready to meet county needs. He felt KPMG was not overseeing the project well, and not meeting the terms of its contract with the county. He also asked them to remove Lee from the project.

Duerr told Caluza in person that he was keeping Lee on the job, and didn't respond to the other concerns.

For the next 10 months, the payroll-project team had many of its members doing the grunt work of payroll: entering data and checking for bugs; and still paychecks were riddled with mistakes. This delayed work on installing the rest of the payroll system, pushing back the September 1999 deadline. More significantly, it created such a tense situation in payroll that the county lost key employees, including the payroll supervisor.

The response from management was to hire more consultants, many from KPMG, including a database administrator and, eventually, a temporary payroll supervisor at $217 an hour each. The management team eventually decided to push back the implementation dates for both the second part of the payroll project and the SAP finance computers to July 2000.

Delays meant budget danger

The payroll project, which had a total budget of about $11 million, had already spent about $9.5 million by Sept. 30, 1999, according to a progress report by KPMG. By contrast, the other side of the project, the SAP financial system, had spent $4.7 of its $14 million.

Pacific Consulting Group (PCG), a watchdog hired by the King County Council to keep an eye on the entire computer project, rang the alarm in an Oct. 13, 1999, memo to the County Auditor. Bob Fuller of PCG said the entire project was in danger because delays were about to bust its budget.

The next six months were spent trying to figure out whether the existing budget was enough to fix the problems with payroll and complete the SAP finance-computer project. In February 2000, Cindy Lee was moved to another position in finance; Duerr announced plans to retire in May. On March 23, Caluza announced his resignation to take a job with the Port of Seattle.

By May, county executive Sims and his new system project managers, Caroline Whalen and David Martinez, suspended work on the project and fired KPMG as the project-management office. To date, the county has paid KPMG about $4.4 million, according to Martinez.

KPMG is still working for the county to fix problems in the installed payroll system, for $1.7 million. The County Council has asked that the contract be renegotiated.

In June, the new project managers canceled the entire project and focused on saving the pieces. The project had nearly gone through the $38 million in its budget. By some estimates, it would have cost an additional $30 million to complete it.

To this day, the Metro payroll system is plagued with errors. The state has routinely rejected retirement-account data from the county, at one point creating a nine-month backlog of data. It still requires overtime and a team of consultants to put out checks every two weeks.

In March, the county hired a payroll supervisor at $65,000 a year. By contrast, the temporary KPMG consultant who did that job earned $217 an hour - that's $6,944 for a 32-hour week, according to the KPMG contract with the county.

The county will spend $3.2 million of the money authorized this week by the council to "stabilize" the payroll system - training people to use it and fixing the bugs in how it processes information.

The cancellation of the project effectively killed most of the work done on the SAP finance-computer system. That side of the project had been on budget and, until the PeopleSoft project went sour, on schedule. Some of its elements were almost done, but now that there is no money, they will be mothballed.

Because software is a fluid product, some feel that all the work done will be obsolete by the time the county chooses to revive it.

"A project that was going well, pretty much on time and on budget, has been wasted," said Casey O'Connor, an SAP team member.

Who's to blame?

Who or what is to blame for the failure of this project?

KPMG was the overseeing consultant for the county, and it was fired in May. But Peter Julicher, the only director commenting for this story, said the consulting company's contract didn't give it authority to make decisions; its job was to advise.

"Our client was the director of finance," Julicher said. "Ultimately, the business people who were in charge decided which risk to take and which not to take."

Brad Duerr, the former director of finance, said you can't blame one person or one event for the problems. He said it was a likely a combination of a tight market for specialized labor and a budget too small for the project. He said he was forced by circumstance to rely on consultants.

"I wonder what people thought I should have done. I thought I took the only action I could. I got somebody in there who, though expensive, knew PeopleSoft and knew payroll," Duerr said.

He said Cindy Lee was a good, tough manager for the payroll project, but in retrospect, "I think sometimes she didn't tell me the whole story."

Lee also says the budget was too small for the job. And she says that in an organization as big as King County, where people have used the same business systems for decades, there are inherent flaws nobody could have predicted that slow down changes.

"Sometimes a new system brings out the flaws in your organization that you haven't been aware of before," she said.

Executive Sims, in his June news conference announcing cancellation of the project, said he would not blame anyone, that ultimately he was responsible because it happened on his watch.

Still, in an interview last week, he said his office has to "rely on department heads and division heads to implement these projects." He said he reacted as quickly as he could, once his staff knew the project was in trouble. He said there was no clear information to make a decision about the project until May. He also said it was time to move on, fix what's wrong with the project and find a way to finish it, rather than place blame.

"Who are you going to go after now? All of the individuals around this project have either left or moved on with their lives. Who would you hold accountable?" he said.

That's not good enough, according to critics and people involved in the project.

"The county needs to end this whole conspiracy of silence around failure," O'Connor, the SAP-team member, said. "If you look at private enterprise, you see a failure like this, you see that the people in charge would be held accountable, and that's not what's going on here."

Roberto Sanchez's phone message number is 206-464-8522. His e-mail address is rsanchez@seattletimes.com.