MOORLACH UPDATE — Software Incompetence — April 5, 2019

The California Globe provides deeper insights into the status of Fi$Cal, the accounting software for the State of California, even quoting my recent UPDATE on the subject, in the piece below (see MOORLACH UPDATE — Fi$Cal Frustrations — March 28, 2019).

25th Anniversary Look Back

April 2

The campaign for Orange County Treasurer-Tax Collector started to receive media attention with a piece in the LA Times on April 2, 1994 (see MOORLACH UPDATE — Goodbye to my Dad — March 23, 2019 and MOORLACH UPDATE — SB 754 — March 16, 2019).

The LA Times elevated the contest with "O.C. Tax Collector to Meet 2nd Challenger in 24 Years — Politics: Opponent may make an issue of county investments, annoying incumbent Robert L. Citron," by Gebe Martinez and Kevin Johnson. Here is the piece with the now famous "red flag" observations, like "being annoyed," "aggressively handles," "recognized nationally for investment ability," "gutsy," "hefty losses," "complicated financial strategy," "borrowing," "a change in the market could turn positive returns into negatives," "contingency plan," and "innovative investment planning."

The classic line out of the entire campaign would be found in this piece: "I don’t know how in the hell he does it, but he makes us all look good."

The deflection strategy of being a Democrat challenged by a Republican was very effective. That’s how shallow things can get. Skip over the $20 billion-plus portfolio "aggressively managed" in an "innovative" manner and focus on the Republican Party Chair’s involvement. Here’s th entire piece:

It was expected to be just another sleepy election year for Orange County Treasurer-Tax Collector Robert L. Citron.

The last time he had an opponent was 24 years ago when he was first elected to the low-key post.

The most recent political fund-raiser Citron held was eight years ago, when there were whispers of an opponent who never materialized. In these days of high-finance politics, holding fund-raisers is just not his style.

But suddenly, Citron, whose office handled 1.1-million property tax bills last year, has a challenger on his hands–one who is promising to make more than a little trouble.

Citron, 68, of Santa Ana received a letter this week from his challenger, John Moorlach, a certified public accountant and financial planner, who is demanding to know how Citron has managed the county’s investments portfolio.

Invoking the state open records law, Moorlach, 38, has submitted a long list of documents he wants released by April 18, detailing where the county’s funds are invested and who the brokers handling the accounts are.

It’s more than a little annoying to the usually soft-spoken Citron, who takes pride in how he aggressively handles a $7.5-billion portfolio for 187 government agencies. Last year, he said, the investments yielded $344 million.

"My reputation is so good as to the types and the quality of investments that I do," Citron said. "I’m not blowing my own horn here, but I am recognized nationally for my investment ability and by the state of California."

Moorlach, he said, "is trying to find a basis to say that I am doing risky investments and so on and so forth. That’s fine. I understand politics."

As the only Democrat in an elective office in county government, Citron claims the Republicans are trying to inject party politics into a nonpartisan race as pay-back for his involvement four years ago in the bitterly fought election victory of Democratic Assemblyman Tom Umberg of Garden Grove.

Umberg defeated Republican Curt Pringle of Garden Grove, who returned to the state Assembly two years later after winning in another district.

Up until the 1990 election, Citron said, he and Orange County GOP Chairman Thomas Fuentes were friends.

"He’s been mad at me ever since and has been out to get me," Citron said. "I am not worried, but I am concerned because you never take an opponent lightly."

But Fuentes says that it was Citron who brought party politics into the county office when he helped Umberg by sending out an endorsement letter that had an imprint of the county seal.

"You know how everyone opens letters from the tax collector like a letter from a lawyer," Fuentes said. "I think he has brought the fox down on his own house by being such a partisan liberal activist."

Moorlach, who is the assistant treasurer for the Orange County GOP Central Committee, said he would not be running if he did not believe Citron should be held accountable after running unopposed six times for four-year terms.

"When I looked at this position, you bet I talked to Tom Fuentes," Moorlach said. "That’s part of the proper etiquette in political circles. Yeah, I was encouraged to look at it."

However, he added, "I am not some puppet" for Fuentes.

Moorlach said he asked for the investment records so he can publicly debate Citron during the campaign without misrepresenting the facts. He also argued that he is not the only one concerned about Citron’s bullish investments.

Moorlach pointed to a recent article in a trade newsletter published by Institutional Investor Inc., which noted Orange County’s profits from its "gutsy" investments but warned that a rise in the interest rate "could leave the fund with hefty losses."

Under a complicated financial strategy, the county is basically borrowing U.S. Treasury bonds and then selling them to invest in higher-yielding bonds.

The trade publication states that as long as the county is borrowing at a lower rate than the return on the security in which it invests, the county is on "solid ground." But a change in the market could turn positive returns into negatives.

Moorlach conceded that Citron may have a contingency plan, but he said what he has heard so far makes him nervous.

"I think (Citron) is taking high risks. I think he’s cavalier," Moorlach, of Costa Mesa, said. "I think his portfolio, a lot of it, has been sheer luck."

But Citron wrote the 1980 law that allows local government treasurers across the state to engage in that innovative investment planning.

And his long record for capturing returns has won plaudits from local government officials, including the Orange County Board of Supervisors, which was recently able to finance a $2-million gang prosecution program using proceeds from Citron’s successful investment transactions.

The program funding came at a most uncertain fiscal time for the county, which has seen once-dependable revenue shrink along with the state’s sagging economy.

Citron’s success is a good example of the power of money in Republican Orange County.

"It doesn’t bother me that he is a Democrat," Board of Supervisors Chairman Thomas F. Riley, a Republican, said. "This is a person who has gotten us millions of dollars. I don’t know how in the hell he does it, but he makes us all look good."

The low-key Citron, who is rarely seen on the local political circuit of dinners and fund-raisers, has managed to ruffle some feathers, though.

When he learned that Sheriff Brad Gates would not be joining the gang program, Citron was one of the few county officials to publicly criticize the sheriff.

The comments touched a nerve with Gates, who maintains a close relationship with Fuentes. "The next time he makes comments about me, I will have a heck of a lot to say," Gates said at the time.

For now, Moorlach is the one planning to take on Citron after he conducts his own informal audit of the county’s financial records.

But Citron warned that Moorlach may be overwhelmed by the task, which is normally handled on a full-time basis by the county auditor’s office.

Citron said he also doubted Moorlach can raise enough money to defeat him.

The latest campaign finance statements filed in the registrar of voters office for the period ending March 17 showed that Moorlach had an ending cash balance of $5,428 compared to $7,237 in Citron’s account.

"I have tremendous name identification (with the voters), which he does not have and is trying to establish," Citron said. "The Republicans have far more needs for Republican candidates, not only in the county but up and down the state, to try to take away a nonpartisan office," Citron said.

But Moorlach countered: "I guess time will tell. . . . He might be surprised at what it’s going to take (to win)."

April 5

The April 5, 1994 edition of the Daily Pilot had a piece by Russ Loar, titled "Moorlach plans to challenge Citron for county treasurer.” Here are some selected portions of the article:

It’s not a political contest expected to generate much excitement, but local accountant John Moorlach is doing his level best to make the sparks fly in the June 7 election battle for county treasurer.

Times are changing, interest rates are rising, and the aggressive, highly leveraged investment strategies of the county treasurer could lead to disaster, [Moorlach] says.

“He’s been a gambler and he’s been lucky,” says Moorlach. “When you leverage, either you win big or you lose big. This is high risk.”

April 7

I wrote another letter to Mr. Citron requesting numerous details: "I would like a full accounting of the investment of the taxable note proceeds transaction involving the Newport-Mesa Unified School District (NMUSD)."

I also wrote to then Orange County Auditor-Controller Steven E. Lewis requesting the June 30, 1993 Comprehensive Annual Financial Report (see, I’ve been focused on CAFRs for a very long time). I also asked about reverse repurchase agreements, margin requirements, and how much the County’s investment pool could be leveraged.

The campaign was on and the media was sniffing around, getting warmer, but was using political reporters, not business reporters, on the case.

Sacramento’s Software Incompetence in the Software Capital of the World

California’s public sector is gummed up by a unionized workforce based on fulfilling ethnic and gender quotas instead of merit

By Edward Ring

California owns a well-deserved reputation as being the global epicenter of high technology. In nearly every critical area, from aerospace to biotech, from nanotech to green tech, to telecommunications, to chip design, California’s universities and private companies are either the best in the world, or they are counted among the leaders.

Probably at the pinnacle of global achievement is California’s software industry, spawning companies that over the past few decades and especially in recent years have completely transformed how we live. Some of these companies, for better or for worse, have designed products that are literally rewiring our brains.

None of this translates to California’s public sector, which is gummed up by a unionized workforce assembled based on fulfilling ethnic and gender quotas instead of merit, along with the usual waste, fraud and corruption that attends to any institution that relies on taxes instead of having to earn revenues in a competitive marketplace.

If you want to know just how bad California’s state government is at implementing software projects, despite being nestled in the software capital of the world, just review the “IT Project Tracking” report, courtesy of a laudable effort at transparency produced by the California Dept. of Technology.

At first glance, it’s not that bad. Of the 23 projects evaluated, only four are marked with a “red” status, defined as “Escalated for immediate corrective action. There is a significant risk to the health of the project.” But consider the cost of these four projects compared to the cost for all 23 projects combined. The total amount allocated for all 23 projects is $2.8 billion. The total amount of the four projects on the skids? Over $1.7 billion. Of the major software projects being undertaken by the state of California, over 61 percent of the money is being mishandled. By their own admission.

By far the worst offender is the “Financial Information System for California,” a red flagged project that has cost taxpayers $918 million dollars so far, with no end in sight. FI$Cal, which was launched back in 2005, is marked “Red” based on “missed deadlines,” “significant development delays,” “inability to complete all planned scope before project completion,” “inadequate determination of scope,” “quality, implementation and management issues,” “configuration errors and workflow errors resulting in rework and failed batch processing,” “quality management process issues,” “still does not have a production like test environment,” “delayed documentation of risks,” “project level issues are not being managed and mitigated,” and on, and on, and on.

What exactly is FI$Cal? To quote from their website, the goal is to “consolidate multiple financial systems into a common platform and eliminate thousands of legacy systems and applications specific to single state entities.” Their motto? “One state. One system.”

Fi$Cal is needed to improve state spending transparency. The State Controller has been unable to provide an open checkbook or meet public records requests asking for an itemized list of expenditures because financial data is currently scattered across 500 incompatible systems.

Consolidating these systems is a big job. But then again, 14 years is a long time. And $918 million is a lot of money. State Controller Betty Yee has expressed grave concerns about the FI$Cal project and claims that “efforts to tie a new computer program into the state’s legacy systems have delayed monthly cash reports and are threatening the accuracy of the state’s annual financial report.”

State Senator John Moorlach (R-Costa Mesa), who ought to be famous, even if for no other reason, because he is the only Certified Public Accountant serving in either house of the California state legislature, had this to say about the FI$Cal project: “As someone who as a County Supervisor has observed abuses to taxpayers by software producers, I am not amused when providers string a client out and, in the case of Orange County, deliberately forced a customer to spend more on unnecessary change orders. California has paid nearly $1 billion for Fi$Cal. This is outrageous. And it is still not working satisfactorily. And it seems that no one is really being held accountable.”

Who is running the FI$Cal project, one might ask? Maybe that’s part of the problem, because while there is an executive team, the project is a partnership bringing together several branches of state government, the Dept. of Finance, the State Controller’s Office, the Dept. of General Services, the Dept. of Technology, and the State Treasurer’s Office. Representatives from all of these departments sit on the FI$Cal steering committee. With this many players, is there accountability at the top? Is there authority at the top?

Since 2015, the director, where the buck typically stops, has been Miriam Barcellona-Ingenito, a career public bureaucrat with a BA from the University of San Francisco, and an MA in Public Policy Studies from the University of Chicago. According to Transparent California, Barcellona-Ingenito’s total pay and benefits package amounted to $227,360 in 2017. If Barcellona-Ingenito is to be held accountable, then she’s failed. If she hasn’t been given sufficient authority to do her job, then that must change.

At the risk of breaking with orthodoxy, one recommendation would be to not just immediately fire or demote Barcellona-Ingenito, but to bring in someone new at a significantly higher rate of pay. And what is required for the top job is not someone with an MA in public policy, but someone with an advanced degree in computer science, with a track record of success in large enterprise software implementations, and – don’t bother if this isn’t part of the deal – the power to summarily fire any employee or any outside vendor involved in the project, for whatever reason or for no reason, and at any time. Give the the new director six months to turn the ship around, and if they fail, then fire them and find someone new.

Along with the ongoing state IT projects for which California’s IT Project Tracking website offer status reports, there is a legacy of recently completed, mismanaged projects. As reported in the Sacramento Bee, there is “a $100 million government computer program doubled the time it takes to license California nurses,” and “a $290 million tax software upgrade unveiled last summer made it more difficult to file taxes online, prompting a major accounting firm to file by paper instead.” And nobody will soon forget the debacle last year at the Dept. of Motor Vehicles as they fitfully attempted to upgrade their software systems.

California’s new Governor, Gavin Newsom, has claimed he wants to correct California’s state government ineptitude when it comes to information technology projects. Being thirty years younger than outgoing Governor Brown, and unlike Brown, having a more than passing acquaintance with actually running a business, it would be premature to dismiss Newsom’s aspirations. Quoted in the Sacramento Bee in reference to steps he is taking to solve the problem, Newsom said “If you like the status quo, you’re not going to like these reforms.”

One may hope.

Edward Ring is a political and financial analyst, working primarily with start-up and early-stage organizations. In 2013, he co-founded the California Policy Center, a free-market think tank based in Southern California.


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