Only in San Diego is financial technology and internal reporting a sexy news topic.
First of all, sitting right there on the sandiego.gov website is a report created by the city's Auditor & Comptroller's office called “Annual Report on Internal Controls.”
Why do you care about this report? You care because it was created in four months, by city employees in consultation with the city's outside auditors, and delivered to the City Council in January. The report contains many of the same monitoring recommendations produced by the Kroll report and for far less than the $20 million-plus the Kroll report cost. Flipping through the document, a reader will find a call for a more ethical tone from top officials, renewed emphasis on a five-year financial plan, a call for an independent audit committee, a call for dramatically improved financial technological systems-and on and on.
The report also spends some quality time on the information-technology problems within city financial departments. Again, why do you care?
Because city technology is so far behind that up until last month, companies doing business with the city were paid by hand. A city clerical employee sat at his or her desk for four hours every day with a pile of checks and a pile of envelopes. She or he took the check from one pile, stuffed the envelope, addressed it and mailed it, then took another one and did it again. Fold, stuff, seal, lather, rinse, repeat a couple of hundred times, every day, every week, every year. For perspective, consider that most private corporations went to automated check folding and mailing machines about 20 years ago. San Diego just got a machine last month.
And speaking of aging technology, Chief Financial Officer Jay Goldstone told CityBeat that the city is still using the IBM-style mainframe it acquired back in 1977 to churn out financial reports. Folks who graduated college between 1980 and 1996 may have sentimental memories of the great Vax machines clanking away beneath the computer labs, but maybe cities shouldn't be running on sentiment. After all, the machine requires thousands of lines of spaghetti code written in the antiquated COBOL language to accomplish every task. San Diego is like the land that Moore's law forgot.
Drop-down menus? Forget it.
“When we need a report in a new format, we have to call a programmer and get them to write a new routine,” Goldstone said.
And that's just the superficial stuff. Over the years, Goldstone said, city bean counters have had nearly complete autonomy to develop their own accounting standards for each of the city's 2,500 revenue streams. Each accountant in the auditor's office decided how to categorize the purchase of rubber bands, how to calculate the depreciation of major expenses like rubber-band dispensers or how best to determine when debt incurred from large rubber-band purchases should hit their budgets. In order for the city to assess total expenditure on rubber bands for the comprehensive annual financial report (CAFR), they have to download the raw data and reorganize it. But remember, the system barely even prints standard reports, let alone the sorts of customizable tables and graphs common in the financial world today. So, department accountants also maintain Excel spreadsheets with more detailed versions of their financial data. So, 2,500 revenue streams means 2,500 spreadsheets.
Then to combine all that data into a single CAFR, the accountants take those spreadsheets and copy and paste them into even bigger spreadsheets. The question of human transcription error begins with “when” not “if.” Mistranscribing an “8” into a “0” may not be too big a deal with your checkbook, but imagine when that “2” is sitting in the millions place of a budget line. For the 2003 budget alone, human error led to $1 billion in errors.
City Auditor-Comptroller John Torell and his team attacked this problem shortly after their arrival in San Diego in March 2005. He had his programmers create what is known to computer geeks as a hack (originally, “hacker” was a derogatory term for programmers who wrote clumsy, inelegant applications): a special bit of software designed to gather data from all the different parts of the mainframe, rearrange the numbers and recalculate them into a report that could provide the auditor at least with some raw data.
Now, at least, Torell and Goldstone can look at the current numbers. But what if they want to check back to 2003? Or 1999? According to the auditor-comptroller's report, they can forget checking for data in the mainframe-it holds only two years of historical information. To get the older stuff, city officials can ask a programmer to load up an old tape, but that's a slow process.
“We have to call around and get the data from people in departments,” Goldstone said.
Last month, when Mayor Jerry Sanders announced his plan to fix some of the city's structural problems, he proposed a new $35 million financial tracking system. As envisioned by Goldstone, the software will tie together all of San Diego's finances.
“There won't be a lot of labor or cost savings,” he said, “but the productivity gains will be enormous.”
City auditors, currently tied up with assisting Kroll and KPMG (the company doing a long-overdue outside audit of San Diego's 2003 finances), spend much of their remaining time trying to extract data from these antiquated systems. The new software would allow them to spend their time creating new reports, doing analysis or doing the forecasts for the mayor's five-year plans.
It would also become a subtle tool to force agencies to comply with a new unified city accounting standard and to “perpetuate best practice,” as Goldstone put it. Some observers say the system will cost $50 million and not $35 million, but everyone's goal is the same: create a new system that would reduce errors and allow accountants and clerical workers time to keep city finances straight.